Fannie Mae Form 3734 is the model construction contract used between a homeowner and a licensed builder when the home is being financed through a Fannie Mae construction-to-permanent loan. To fill it out correctly, you need a fixed contract price, a completion date no more than twelve months out, a detailed scope of work attached as Exhibit “A,” and a milestone-based payment schedule with a ten percent holdback — all signed by both parties and approved by your lender before construction begins. The form runs eight pages and is organized into numbered articles covering the work, price, timeline, payments, change orders, and each party’s responsibilities.
Fannie Mae publishes Form 3734 as a model, not a mandatory government form. Your lender may use it as written, modify it, or substitute a proprietary contract that carries the same required provisions. Whatever version you sign, the terms must satisfy Fannie Mae’s Selling Guide, because the lender cannot sell your permanent mortgage to Fannie Mae without a compliant construction agreement in the file.
What the Articles Cover
Before filling in any blanks, know what each article does:
- Article 1 identifies the work by referencing Exhibit “A” and the property address.
- Article 2 sets the completion date, which cannot exceed twelve months after loan closing.
- Article 3 states the total contract price.
- Article 4 requires every change to be documented in writing.
- Article 5 lists the contract documents: the contract itself, Exhibit “A,” blueprints, plans, specifications, and the work-and-payment schedule.
- Article 6 governs progress payments, retainage, and final payment.
- Articles 7 through 9 cover interest on late payments, the contractor’s representations about licensing and site familiarity, and the contractor’s responsibilities for personnel, materials, subcontractors, permits, taxes, and cleanup.
The remaining pages address warranty, dispute resolution, and signatures. If your project is a renovation rather than new construction, this is the wrong form: HomeStyle Renovation loans use Form 3730 instead.1Fannie Mae. Renovation Contract, Renovation Loan Agreement, and Lien Waiver
Setting the Contract Price
Article 3 asks for a single dollar figure for the entire project. Fannie Mae’s Selling Guide for single-closing construction-to-permanent transactions requires predictable costs, so the number should come from a fixed-price or guaranteed-maximum-price arrangement. Cost-plus contracts, where the builder bills for materials and adds a percentage markup, introduce too much uncertainty into the loan-to-value ratio and are generally incompatible with this financing.
Lock the price down before signing. The lender compares this figure against the appraiser’s “as-completed” valuation to underwrite the loan, so a soft or open-ended number will not clear underwriting.
Setting the Completion Date
Article 2 requires a specific completion date. Under the model contract, the work must be finished no later than twelve months after the loan closing date. Fannie Mae’s Selling Guide allows the total construction period on a single-closing transaction to stretch up to eighteen months if the lender grants an extension, but no single period can exceed twelve months.2Fannie Mae. Conversion of Construction-to-Permanent Financing: Single-Closing Transactions
Work with your builder to set a date that reflects real conditions on the ground. An aggressive timeline invites change orders when milestones slip. An unnecessarily long one can complicate your interest rate lock and requalification requirements at conversion.
Building Out Exhibit “A” and the Plans
Article 5 ties the contract to Exhibit “A,” the blueprints and specifications, and a work-and-payment schedule. Exhibit “A” needs to describe the construction in enough detail for an appraiser to value the finished home. Phrases like “standard kitchen” are not enough. Name cabinet grade, countertop material, flooring type, appliance models, and fixture brands. The “as-completed” appraisal depends on this level of detail, and a mismatch between what the contract describes and what the appraisal assumes can delay funding or shrink your loan amount.
The work-and-payment schedule is where you and the builder define construction milestones and match a dollar amount to each one. This schedule drives every draw during the build, so treat it as a working document, not a formality. Milestones should be inspectable — foundation poured, framing complete, dried in, mechanicals rough-in, drywall, final — so a third-party inspector can verify progress before each disbursement.
How Payments Work Under Article 6
Article 6 sets up a structured disbursement system. Most construction-loan disputes originate here, so it pays to understand the mechanics before signing.
Progress Payments and the Ten Percent Holdback
Under Article 6.1, the contractor submits a Request for Disbursement at each milestone in the payment schedule. You pay ninety percent of the amount covered by the request within ten calendar days and retain ten percent as a holdback.3Fannie Mae. Multistate Construction Contract The accumulated holdback is not released until final payment. That retained amount is your leverage to make sure the contractor finishes all remaining work and corrects any deficiencies before walking away.
Article 6.1 also lets you withhold payment for failure to perform the work per the contract documents, defective work that has not been corrected, or the contractor’s failure to pay subcontractors and suppliers. These are real protections, but use them with care. Withholding without a legitimate contractual basis creates its own legal exposure.
Lien Waivers With Every Draw
Fannie Mae’s companion Multistate Construction Loan Agreement (Form 3735) requires that each Request for Disbursement include unconditional lien waivers from the contractor and from suppliers for all work covered by that request.4Fannie Mae. Multistate Construction Loan Agreement A lien waiver confirms the people who supplied labor and materials for that phase have been paid and will not file a claim against the property. Collect them every time. Missing waivers invite mechanics’ liens that can cloud title and derail the permanent financing.
Final Payment
Article 6.2 governs closeout. Once the contractor considers the work substantially complete, you walk the property together and create a punch list. The contractor corrects the listed items. Final payment, including the accumulated holdback, becomes due once the lender obtains a certification of completion confirming the work matches the contract documents and, if required by law, the local government issues a final certificate of occupancy.3Fannie Mae. Multistate Construction Contract
Change Orders
Changes come up on almost every build. Article 4 keeps them controlled: any increase or decrease in the contract price, any change in the work, or any change in the completion timeline must be documented in a written change order signed by both you and the contractor and approved by the lender.3Fannie Mae. Multistate Construction Contract
Lender approval is the piece most borrowers do not expect. You cannot simply agree with your builder to upgrade the roofing material or add a covered patio. The lender needs to verify the change does not push costs beyond what the loan supports or alter the appraised value in a way that throws off the loan-to-value ratio.
Keep each change order tight and specific. Describe exactly what changed, the dollar impact, and any schedule adjustment. Verbal agreements have no standing under this contract and can create real problems at final inspection, when the lender compares the finished home to the originally approved plans.
Builder Documents the Lender Will Require
Article 8 requires the contractor to represent that they are duly licensed as required by applicable law. Beyond that, your lender will require a package of verification documents before approving the builder. Fannie Mae’s Selling Guide leaves specific insurance minimums and reference requirements largely to lender discretion, but a typical package includes:
- Current contractor’s license issued by the state or local licensing board, verifiable through the licensing authority’s records.
- General liability insurance covering property damage and third-party injuries on the job site, commonly in the range of $500,000 to $1,000,000 depending on the lender.
- Workers’ compensation insurance covering on-site injuries to the contractor’s employees, required in nearly every state.
- A builder profile or questionnaire detailing the contractor’s professional history, project types, years in business, and references.
Gather these early. Chasing down insurance certificates during loan processing is one of the most common sources of delay. Ask the contractor’s insurance agent to send certificates naming the lender as an additional insured; most agents can turn this around in a day or two.
Submitting the Contract and Starting Work
Once you and the contractor have signed the completed contract, along with Exhibit “A,” the plans and specifications, and the work-and-payment schedule, you submit the full package to the lender’s construction department. The lender reviews the contract against the appraisal to confirm the loan-to-value ratio works, verifies the draw schedule aligns with realistic construction milestones, and confirms that the builder qualification documents are current and sufficient.
Do not break ground before the lender authorizes it. Starting early can jeopardize funding because the lender has not yet confirmed that the project, the builder, and the contract terms meet Fannie Mae’s requirements. During the build, each disbursement is preceded by an inspection, typically performed by a third-party inspector the lender hires, to confirm the completed work matches the scope defined in the approved contract documents.
What Happens at Completion
When the build is finished, the lender triggers the conversion to permanent financing. An Appraisal Update and Completion Report (Fannie Mae Form 1004D) confirms the home’s value matches or exceeds what was originally projected. If the appraiser indicates the value has declined, the lender must order a full new appraisal and requalify you using the updated loan-to-value ratio.2Fannie Mae. Conversion of Construction-to-Permanent Financing: Single-Closing Transactions
After conversion, the permanent loan must have a term not exceeding thirty years, excluding the construction period. At that point the construction contract has done its job, and you are a standard mortgage borrower.