Best construction loan lenders in 2024
A construction loan helps finance the building of a home, from the land or lot purchase to the permits, labor and materials. This type of loan isn’t as easy to come by as a regular mortgage for an existing home, but many types of lenders offer them, including big banks. Here are our picks for the best construction loan lenders in 2024.
Best construction loan lenders
| Lender | Credit requirements | Down payment minimum | Bankrate Score | |
|---|---|---|---|---|
| New American Funding | 620 for conventional loans | 3% for conventional loans, 3.5% for FHA loans, none for VA and USDA loans | 4.8 | |
| U.S. Bank | 620 for conventional loans, 740 for jumbo loans | 5% for conventional loans, 3.5% for FHA loans, none for VA and USDA loans | 4.8 | |
| Wells Fargo | 620 for conventional loans | 3% for conventional loans, 3.5% for FHA loans, none for VA and USDA loans | 4.8 | |
| Flagstar Bank | 620 for conventional loans, 700 for jumbo loans, 580 for FHA loans | 3% for conventional loans, 3.5% for FHA loans, none for VA and USDA loans | 4.6 | |
| Old National Bank | 620 for conventional loans, 600 for FHA loans, 620 for VA loans | Undisclosed | 4.6 |
New American Funding
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- Availability: All U.S. states except Hawaii and New York
- Loans offered: Conventional, jumbo, FHA, VA, USDA
- Credit requirements: 620 for conventional loans
- Down payment minimum: 3% for conventional loans, 3.5% for FHA loans, none for VA and USDA loans
- Where to find: Branch locations and online
U.S. Bank
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- Availability: All U.S. states
- Loans offered: Conventional, jumbo, FHA, VA, USDA
- Credit requirements: 620 for conventional loans, 740 for jumbo loans
- Down payment minimum: 5% for conventional loans, 3.5% for FHA loans, none for VA and USDA loans
- Where to find: Branch locations and online
Wells Fargo
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- Availability: All U.S. states
- Loans offered: Conventional, jumbo, FHA, VA, USDA
- Credit requirements: 620 for conventional loans
- Down payment minimum: 3% for conventional loans, 3.5% for FHA loans, none for VA and USDA loans
- Where to find: Branch locations and online
Flagstar Bank
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- Availability: All U.S. states
- Loans offered: Conventional, jumbo, FHA, VA, USDA
- Credit requirements: 620 for conventional loans, 700 for jumbo loans, 580 for FHA loans
- Down payment minimum: 3% for conventional loans, 3.5% for FHA loans, none for VA and USDA loans
- Where to find: Branch locations and online
Old National Bank
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- Availability: All U.S. states
- Loans offered: Conventional, jumbo, FHA, VA, USDA
- Credit requirements: 620 for conventional loans, 600 for FHA loans, 620 for VA loans
- Down payment minimum: Undisclosed
- Where to find: Branch locations and online
How to choose the best construction loan lender
Ultimately, the best lender for you depends on your goals, preferences and financial situation. Construction loans can be complex, which is why it’s best to work with a lender who has experience with this type of mortgage.
To find the best mortgage lender and get the lowest-cost loan, compare several construction loan lenders and their rates and terms, and also compare your interactions with them. If you’re looking for responsiveness, for example, take note of this in your communications with the loan officer.
How to apply for a construction loan
Applying for a construction loan is similar to applying for a mortgage on an existing home, with a few extra steps and likely a longer timeline. Here are the basic steps:
1. Review construction loan requirements
Construction loan lenders have varying requirements, but they are typically based on the amount you borrow. Similar to other types of mortgages, lenders determine your eligibility for a construction loan by evaluating your creditworthiness, income, debt-to-income (DTI) ratio and other factors. Here’s what to expect:
- Credit score – Many lenders require a credit score of 680 or higher for a construction loan, but some might work with borrowers with lower credit scores.
- DTI ratio – Lenders usually look for your debt obligations to total no more than 45 percent of your monthly income.
- Down payment – Be prepared to put down 20 percent or more, unless you’re applying for an FHA or VA construction loan.
- Construction plan – Lenders usually require a detailed plan before funding the first phase of the project.
- Repayment plan – In addition to the construction loan itself, you must also qualify for permanent mortgage financing. The construction loan covers payments for the project during the building process and then converts to a permanent mortgage upon completion.
2. Shop around for lenders and rates
Many mortgage lenders don’t offer construction loans, so you might have to expand your search to uncover options. Banks tend to offer them more so than credit unions or online lenders, so it might make sense to start there. Some banks offer special pricing for customers with personal or business accounts.
3. Submit paperwork
Once you connect with a lender and determine your eligibility, submit your loan application plus the contractor agreement and plans from your architect or builder. The lender not only wants to know the cost of the build, but also the scope of the work and timeline.
As the lender underwrites your application, be prepared to answer any questions or provide additional documentation as needed. This’ll help you avoid delays with closing and getting the funds to your contractor.
Types of construction loans
- Construction-to-permanent loan: A loan to pay for construction costs, which then converts to a permanent mortgage once the home’s finished and ready for occupancy
- Construction-only loan: A loan to pay for construction costs by disbursing funds in increments as project milestones are met; generally has a repayment period of one year or less
- Owner-builder construction loan: A loan that operates like a construction-to-permanent or construction-only loan, but with one key difference: the borrower is also the builder
- End loan: The mortgage on the property once construction is complete
FAQ on construction loans
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A construction loan is a short-term loan designed to help with the purchase of a plot of land and the construction of a home or pay for major renovations to an existing home. Renovation loans, on the other hand, pay for home improvements. This funding can come in a variety of forms, such as a personal loan or a government-insured loan, or by taking out equity in your home. Renovation loans aren’t as structured as construction loans; they’re usually unsecured, and borrowers have more options when it comes to accessing funds.
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Construction loan interest rates are generally higher than the mortgage rates for standard home purchases, in part because in a build situation, there’s no home (yet) to secure the construction loan against, making it riskier for the lender to offer.
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For any type of mortgage, you’ll need to qualify based on the lender’s requirements. In that sense, a construction loan is no harder to get than a traditional mortgage, provided you qualify. The process of applying for a construction loan, however, might be more difficult than your average homebuying mortgage, because you’ll need to provide more paperwork about the build and contractor, as well as follow the lender’s requirements in terms of timeline, inspections and payouts.
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To determine the best construction loan lenders, Bankrate evaluated lenders based on affordability, availability and borrower experience. The best construction loan lenders generally have a Bankrate Score of 4.6 or higher. Learn more about our methodology.
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