# TDHCA Construction Requirements for Developers and General Contractors

URL: https://mycontractorsinsurancequote.com/projects/affordable-housing-construction/texas-tdhca
Updated: 2026-10-29 · Reviewed by the Principal, Gleason Insurance Brokers, LLC
Publisher: My Contractors Insurance Quote, a website of Gleason Insurance Brokers, LLC

When TDHCA Direct Loan funds hold a first lien during construction, or the development is a public work, the 2026 Chapter 13 rule calls for payment and performance bonds in the full amount of the construction contract, and it retains 10% of each hard-cost draw until the final draw. Contractor liability and workers' compensation certificates at $1M naming TDHCA as additional insured, and builder's risk naming TDHCA as mortgagee and loss payee, come from TDHCA's closing checklist rather than rule text. The 2026 QAP separately caps the general contractor fee by hard-cost tier, so confirm the current year's rules and the loan documents for each award.

## Key Decision Points
- 2026 Chapter 13, §13.11(c)(4)(C): payment and performance bonds for the full contract amount when TDHCA holds first lien during construction or the development is a public work.
- §13.11(c)(14)(I): 10% of requested hard costs is retained until the final draw, figured separately for each Direct Loan fund source.
- The closing checklist (file dated October 11, 2024, item 21) lists contractor liability and workers' compensation at $1M with TDHCA as additional insured and builder's risk naming TDHCA as mortgagee and loss payee.
- 2026 QAP §11.302(e)(6): general contractor fees capped at 14%, 16% or 18% depending on hard costs, with dollar caps on the two smaller tiers.
- Chapter 10, §10.402(b): construction status reports are due quarterly, by the 10th of January, April, July and October.
- The 2026 Chapter 13 PDF still shows edit marks and TDHCA's pages also link the 2025 rule, so confirm which rule governs the award.

## Four TDHCA Documents Shape the Construction Terms

A Texas affordable housing development financed through the Texas Department of Housing and Community Affairs typically answers to several documents at once. The Multifamily Direct Loan rule in 10 TAC Chapter 13 sets the loan's construction terms: bonds, title, draws, retainage, inspections and labor documentation. The Qualified Allocation Plan in 10 TAC Chapter 11 governs housing tax credits, and its underwriting subchapter limits what the general contractor may earn and asks how floodplain risk is handled. The post-award rules in 10 TAC Chapter 10, Subchapter E, set the construction reporting calendar. A fourth document, the Multifamily Direct Loan closing checklist, is where TDHCA's insurance certificate expectations appear.

Each of these is annual or revised often. This page cites the 2026 Chapter 13 rule, the 2026 QAP approved by the TDHCA Board on November 6, 2025, and by the Governor on December 1, 2025, the 2026 Chapter 10 asset management rules and a closing checklist file dated October 11, 2024. A development awarded under an earlier year's rules can carry earlier terms, and the loan documents for the award control over any summary.

For how TDHCA compares with other housing finance agencies, see [affordable housing construction requirements by agency](https://mycontractorsinsurancequote.com/projects/affordable-housing-construction).

## Insurance Certificates on the Direct Loan Closing Checklist

The 2026 Chapter 13 rule does not set builder's risk, liability limits or additional insured wording. Those expectations appear in TDHCA's Multifamily Direct Loan closing checklist, a list of items for the legal closing folder whose file is dated October 11, 2024. Item 21 asks for contractor insurance certificates: liability and workers' compensation shown as "$1M" with TDHCA as additional insured, and builder's risk with TDHCA as mortgagee and loss payee. The checklist's named-entity wording is "Texas Department of Housing and Community Affairs, Its Successors and/or Assigns," which is the form many closing attorneys look for on the certificate and endorsements.

Because this comes from a checklist and not from rule text, treat it as TDHCA's closing expectation and confirm the final terms in the loan documents for the award. The checklist does not say whether $1M is a per-occurrence or aggregate figure, and it states no builder's risk amount, deductible or umbrella limit, so those terms come from the loan agreement and from the senior lender where there is one. Item 29 of the same checklist lists a Davis-Bacon Labor Standards Officer form and a pre-construction conference, marked "if applicable."

- Contractor liability and workers' compensation certificates shown as $1M, TDHCA as additional insured
- Builder's risk naming TDHCA as mortgagee and loss payee
- Named-entity wording that includes TDHCA's successors and assigns
- Davis-Bacon Labor Standards Officer form and pre-construction conference, if applicable

For mortgagee, loss payee and certificate mechanics in general, see [how construction lenders write insurance exhibits](https://mycontractorsinsurancequote.com/resources/lender-insurance-requirements).

### Illustrative scenario: A Direct Loan Closing in Waco

Brazos Terrace Partners is closing a TDHCA Direct Loan for a 96-unit new construction development with $18 million in hard costs, and its general contractor, Red Oak Builders, is negotiating the contract. Because TDHCA will hold first lien during construction, the loan calls for payment and performance bonds in the full contract amount, so Red Oak's surety looks at its work on hand before committing. The closing attorney asks for liability and workers' compensation certificates shown at $1M naming TDHCA as additional insured and builder's risk naming TDHCA as mortgagee and loss payee, and the developer confirms in the loan agreement whether $1M is per occurrence or aggregate. Red Oak's fee is budgeted at no more than 14% of hard costs under the 2026 QAP, and its subcontracts hold retainage until the owner's final draw, which waits on the Davis-Bacon wage report and the title down-date. These details are hypothetical, and a real program depends on TDHCA, the surety or carriers and the firm's own risk.

## Full-Contract Bonds, Title and the Collateral Assignment

Section 13.11(c)(4)(C) of the 2026 Chapter 13 rule requires payment and performance bonds "in the full amount of the construction contract" or an equivalent guarantee allowed under state law. The requirement applies in two situations: when Department funds hold a first lien position during construction, or when the development is a public work. A USDA Section 515 development that is not a public work is exempt from this paragraph but must meet USDA's alternative requirements.

For a general contractor, a full-contract performance bond and payment bond on a multifamily job draw on the same surety capacity as any other large contract, and the surety typically looks at the contractor's financial statements, work on hand and the owner's financing before committing. For the developer, the bond question often turns on lien position: when a private construction lender holds first lien and TDHCA is subordinate, and the development is not a public work, the rule's bond paragraph is written around the first-lien case, so ask TDHCA and the senior lender what each requires. The rule also calls for a title insurance commitment or policy showing the Department as lender under §13.11(c)(4)(E)(iv), and §13.11(c)(6)(A) assigns the Owner and General Contractor agreement to the Department as collateral, beside a promissory note, deed of trust, construction loan agreement and land use restriction agreement. Bonding is subject to the surety's underwriting and the terms of the bonds issued.

For how sureties underwrite a full-contract bond, see [performance bonds for full contract amounts](https://mycontractorsinsurancequote.com/construction-surety-bonds/performance-bonds).

## Draws, 10% Retainage and What the Final Draw Needs

Draw requests under §13.11(c)(14)(B) are submitted on AIA G702 and G703, signed by the general contractor and certified by the architect. The rule withholds at least 50% of the funds from the initial disbursement, sets the first draw no later than 180 days after loan closing and, under §13.8(b), reserves at least 10% of funds for the final draw. Section 13.11(c)(14)(I) adds that 10% of requested hard costs is retained and not released until the final draw, and the 10% is figured separately for each Direct Loan fund source.

Release of retainage under §13.11(c)(14)(C) depends on a title down-date endorsement dated at least 30 calendar days after the completion date shown on AIA G704, with no work remaining. Where the loan holds first lien, §13.11(c)(14)(G)(i) pays 75% of the developer fee by percent complete and the remaining 25% at release of retainage. The final draw also requires Davis-Bacon documentation, meaning a Notice to Proceed that locks in Department of Labor prevailing wages and an approved final wage compliance report, plus Section 3 compliance documentation as applicable, under §13.11(c)(14)(J)(v) and (vii). The 2026 QAP adds that for Direct Loan-only developments the $40 per low-income unit compliance fee is paid before release of final retainage.

Subcontract retainage and closeout paperwork usually need to line up with this sequence. A general contractor whose subcontractors expect retainage at substantial completion can find the owner's 10% held until the final draw, with the down-date endorsement and wage reports still outstanding.

For how payment bonds sit beside retainage and subcontractor claims, see [payment bonds and subcontractor payment](https://mycontractorsinsurancequote.com/construction-surety-bonds/payment-bonds).

## Inspections, the Construction Term and Quarterly Reports

TDHCA's construction inspectors conduct plan reviews for accessibility and amenity issues and perform mid and final construction inspections. Chapter 13 builds them into the loan: a plan review letter from inspection staff before closing under §13.11(c)(4)(D)(iv), a mid-construction inspection request at no less than 25% completion under §13.11(c)(8), and a closed Final Development Inspection Letter within 36 months of loan closing under §13.11(c)(10). Section 13.8(b) limits the construction term to no more than 36 months and states that no interest accrues during it, and §13.11(c)(13) terminates the award, with all funds repaid, if the development is not completed within four years of the effective date of the Direct Loan contract.

Section 10.402(b) of the 2026 Chapter 10 rules requires construction status reports each quarter, due by the 10th of January, April, July and October. For awards that are Direct Loan only, the first report is due by the 90th day after loan closing; for tax-exempt bond developments, by the 60th day after the bonds close; and for competitive tax credit developments, by October 10 of the year after award. The reports include the executed general contractor contract, the construction loan agreement, third-party construction inspection reports and AIA G702 and G703, so the general contractor's pay applications and inspection results feed the owner's filing every quarter.

For the wider set of Texas rules a developer works within, see [Texas developer insurance and bond requirements](https://mycontractorsinsurancequote.com/texas/audiences/developers).

## Contractor Fee Tiers and Flood Insurance in the 2026 QAP

The 2026 QAP's underwriting rules in §11.302(e)(6) cap the general contractor fee, which includes general requirements, overhead and profit. The cap depends on the development's hard costs, and fees paid to affiliated or related-party subcontractors count toward it. Any amount over the cap is excluded from Total Housing Development Costs. Section 11.302(e)(5) also caps contingency at 7% of building cost, site work and off-site work for new construction and 10% for rehabilitation.

- Hard costs of $3 million or more: 14%
- Hard costs over $2 million and under $3 million: the lesser of $420,000 or 16%
- Hard costs of $2 million or less: the lesser of $320,000 or 18%

For statewide context beyond TDHCA programs, see [Texas construction insurance and bond requirements](https://mycontractorsinsurancequote.com/texas).

## Flood Insurance, Force Majeure and Which Rule Governs

Where buildings sit in the 100-year floodplain, §11.302(g)(2)(B) of the 2026 QAP asks the applicant to identify the cost of flood insurance and certify that it will be obtained, unless a Letter of Map Amendment or LOMR-F removes the site from the floodplain. The QAP's site rules in §11.101(a)(1) also call for finished ground floors at least one foot above the floodplain. The QAP's force majeure provision asks the owner to show that the development and owner were properly insured, which ties the construction-period insurance program to relief from deadlines after a covered event. Whether any policy responds to a given loss depends on its terms and the facts.

The 2026 Chapter 13 PDF read for this page was created March 30, 2026, and still shows leftover edit marks, and TDHCA's Direct Loan program page and Asset Management page still link the 2025 rule. The 2026 PDF also shows no adoption or effective date. Confirm with TDHCA which rule governs the award and read the executed loan documents, since figures and section numbers can shift from year to year. Nothing on this page means an award, loan or allocation will be made or that a contractor will qualify; insurance and bond placement remain subject to underwriting, can vary by carrier guidelines and programs and are subject to the terms of the bonds and policies issued.

For builder's risk on apartment and mixed-use projects, see [builder's risk for multifamily construction](https://mycontractorsinsurancequote.com/builders-risk-insurance/multifamily-construction).

## Before You Ask for a Quote

### What to Gather
- The Direct Loan award letter, contract and draft loan documents, including the construction loan agreement
- Which year's Chapter 13 rule and QAP the award was made under
- The executed or draft Owner and General Contractor agreement
- Current liability, workers' compensation and builder's risk certificates with TDHCA wording
- Surety prequalification for full-contract payment and performance bonds
- Hard-cost budget showing the general contractor fee and contingency
- Floodplain determination, LOMA or LOMR-F if the site is near a floodplain
- Davis-Bacon and Section 3 applicability for the funding source

### What to Ask the Insurer or Surety
- Does TDHCA hold first lien during construction, or is the development a public work, so that full-contract bonds apply?
- Does the $1M on the closing checklist mean per occurrence or aggregate, and do the loan documents set any higher limit?
- What builder's risk amount, deductible and loss payee wording do TDHCA and any senior lender require?
- Which year's Chapter 13 rule governs this award?
- How will subcontract retainage line up with TDHCA's 10% held until the final draw?
- Who prepares the quarterly construction status reports, and when is the first one due?

## Broker Notes

**Quick Answer:** TDHCA's 2026 Direct Loan rule calls for full-contract payment and performance bonds when TDHCA holds first lien during construction or on a public work and retains 10% of hard costs until the final draw; its closing checklist lists $1M contractor liability and workers' compensation certificates and builder's risk naming TDHCA.

**Common Mistake:** Treating the closing checklist's $1M as the whole insurance requirement. The checklist does not say whether it is per occurrence or aggregate and sets no builder's risk amount, so the loan documents decide.

**Broker Perspective:** Lien position drives the bond answer under §13.11(c)(4)(C), so it is worth settling whether TDHCA or a private lender holds first lien before the general contractor's surety is approached.

**Coverage Impact:** Naming TDHCA as additional insured, mortgagee and loss payee changes who is protected and who is paid on a loss; whether a policy responds still depends on its terms, can vary by carrier guidelines and programs and is subject to underwriting.

## Questions Buyers Ask

### When does TDHCA require payment and performance bonds on a Direct Loan development?

Under §13.11(c)(4)(C) of the 2026 Chapter 13 rule, when Department funds hold a first lien position during construction or the development is a public work. The bonds are in the full amount of the construction contract, or an equivalent guarantee allowed under state law. USDA Section 515 developments that are not public works follow USDA's alternative requirements.

### What insurance does TDHCA ask for at a Direct Loan closing?

TDHCA's closing checklist (file dated October 11, 2024, item 21) lists contractor liability and workers' compensation shown as $1M with TDHCA as additional insured, and builder's risk naming TDHCA as mortgagee and loss payee. That comes from the checklist, not rule text, so confirm the terms in the loan documents.

### How much retainage does TDHCA hold on construction draws?

Section 13.11(c)(14)(I) of the 2026 rule retains 10% of requested hard costs until the final draw, figured for each Direct Loan fund source. Release depends on a title down-date at least 30 calendar days after the AIA G704 completion date, plus Davis-Bacon and Section 3 documents as applicable.

### What is the general contractor fee limit in the 2026 TDHCA QAP?

Section 11.302(e)(6) caps the fee, including general requirements, overhead and profit, at 14% when hard costs are $3 million or more, the lesser of $420,000 or 16% between $2 million and $3 million, and the lesser of $320,000 or 18% at $2 million or less. Affiliate subcontractor fees count toward the cap.

### How often must a TDHCA development report on construction progress?

Quarterly. Section 10.402(b) of the 2026 Chapter 10 rules makes construction status reports due by the 10th of January, April, July and October, with the first report timed by funding type, such as the 90th day after closing for Direct Loan-only awards.

## Official Sources

1. [Multifamily Direct Loan Closing Checklist (Due Diligence), file dated October 11, 2024](https://www.tdhca.texas.gov/sites/default/files/multifamily/docs/ClosingChecklist-DueDiligence.docx), Texas Department of Housing and Community Affairs. Item 21 contractor liability and workers' compensation certificates ($1M) with TDHCA as additional insured; builder's risk with TDHCA as mortgagee and loss payee; named-entity wording with successors and assigns; item 29 Davis-Bacon Labor Standards Officer form and pre-construction conference if applicable Verified 2026-10-26.
2. [10 TAC Chapter 13, Multifamily Direct Loan Rule (2026)](https://www.tdhca.texas.gov/sites/default/files/multifamily/docs/26-MFDL-10TAC13-Rule.pdf), Texas Department of Housing and Community Affairs. Full-contract payment and performance bonds, §13.11(c)(4)(C); title policy showing the Department as lender; collateral assignment of the Owner and General Contractor agreement; draws, 10% retainage, release of retainage and developer fee timing; Davis-Bacon and Section 3 documents before the final draw; inspections; 36-month construction term and four-year completion deadline. PDF created March 30, 2026, with edit marks and no adoption date. Verified 2026-10-26.
3. [Multifamily Programs: QAP, NOFAs and Rules](https://www.tdhca.texas.gov/multifamily-programs-qap-nofas-and-rules), Texas Department of Housing and Community Affairs. Links the 2026 Chapter 13 rule; TDHCA's Direct Loan and Asset Management pages also link the 2025 rule Verified 2026-10-26.
4. [10 TAC Chapter 11, 2026 Qualified Allocation Plan](https://www.tdhca.texas.gov/sites/default/files/multifamily/docs/26-QAP.pdf), Texas Department of Housing and Community Affairs. General contractor fee limits, §11.302(e)(6); contingency caps, §11.302(e)(5); flood insurance certification, §11.302(g)(2)(B); finished floor one foot above the floodplain, §11.101(a)(1); force majeure properly insured requirement; compliance fee before release of final retainage for Direct Loan-only developments; Board approval November 6, 2025, and Governor approval December 1, 2025 Verified 2026-10-26.
5. [10 TAC Chapter 10, Subchapter E, Post Award and Asset Management Rules (2026)](https://www.tdhca.texas.gov/sites/default/files/asset-management/docs/26-AMRules.pdf), Texas Department of Housing and Community Affairs. Quarterly construction status reports under §10.402(b), due dates, first-report timing by funding type and required contents Verified 2026-10-26.
6. [Construction Inspections and Accessibility](https://www.tdhca.texas.gov/construction-inspections-and-accessibility), Texas Department of Housing and Community Affairs. Plan reviews for accessibility and amenity issues and mid and final construction inspections Verified 2026-10-26.

## Related Decisions

- [affordable housing construction requirements](https://mycontractorsinsurancequote.com/projects/affordable-housing-construction)
- [construction lender insurance requirements](https://mycontractorsinsurancequote.com/resources/lender-insurance-requirements)
- [Texas developer requirements](https://mycontractorsinsurancequote.com/texas/audiences/developers)
- [multifamily developer insurance and bonds](https://mycontractorsinsurancequote.com/who-we-serve/developers-subdividers/multifamily-developers)
- [performance bonds](https://mycontractorsinsurancequote.com/construction-surety-bonds/performance-bonds)
- [Texas construction insurance](https://mycontractorsinsurancequote.com/texas)

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