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Best Construction Loan Lenders

How to Finance Your Construction Project

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A construction loan is a type of short-term loan that a borrower or a builder uses to finance the building phase of a new home. You may choose to get a construction loan if you’re remodeling your current home, planning to build a new home yourself, or hiring a builder to build you a new home on a piece of land that you’re purchasing.

Residential new construction is rising and based on the number of new permits, it will continue to do so for the foreseeable future. In 2020 about 1.47 million housing units were started. All of this new construction means that there will be a need for construction loan lenders. 

We reviewed more than a dozen construction loan lenders before choosing the top seven, considering the types of loan programs they offer along with their required down payments, minimum loan requirements, and interest rates. Read on to see which construction loan lender is right for you. 

The Best Construction Loan Lenders of 2022

Best Overall : BuildBuyRefi


Build Buy Refi

Build Buy Refi

  • Loan types: FHA, VA, USDA
  • Construction loan availability: 47 states
  • Minimum recommended credit score: 620
Pros
  • In-house underwriting

  • Provides land, construction, and mortgage financing

  • Offers renovation loans and refinancing

Cons
  • Only available in 47 states

  • Minimum recommended credit score of 620

  • Minimum loan amount of $175,000

Why We Chose It

BuildBuyRefi, formerly Nationwide Home Loans Group, is a division of Magnolia Bank. The company has over 100 years of combined experience.

We chose BuildBuyRefi as our best overall construction loan lender because it lends in 47 states, offers loans with low down payments and low interest rates, and can finance the land, the construction, and a permanent mortgage into one rate locked loan. This is an attractive feature because you only pay closing costs once and get a guaranteed interest rate regardless of if rates go up during the construction process.

BuildBuyRefi offers the following:

  • In-house underwriting so loans can go to closing sooner, although the timeframe does depend on the type of loan
  • Construction loan minimum: $100,000
  • Minimum FICO score: 620
  • Down payment: Starts at 0% for VA loan and 3.5% for FHA loan
  • Rates vary depending on loan programs and borrower qualifications

BuildBuyRefi offers home loans, jumbo loans, construction loans, refinances, and has divisions that deal with rural development home loans and VA loans.

Runner-Up, Best Overall : TD Bank


TD Bank

TD Bank

  • Down payment required: 20%
  • Eligibility: New homes, home renovations
  • Interest rates: Fixed-rate or adjustable-rate
Pros
  • Flexible down payment options

  • Interest-only payments during construction

Cons
  • Doesn't publish credit score minimums

  • Doesn't finance of condominiums or co-operative apartments

  • Doesn't offer FHA or VA construction loans

Why We Chose It

TD Bank is one of the 10 largest banks in the U.S., servicing over nine million customers and operating in 1,250 locations on the East Coast. It offers full banking services, including private banking services, home loans, refinances, construction loans, home equity lines, and personal loans.

TD Bank is our choice for runner-up for best overall construction loan lenders because it offers flexible loan terms, has multiple locations for customer convenience, and features loan programs with low down payments. It’s an attractive option for buyers who want a reputable bank with a long lending history with walk-in locations and the flexibility to choose between fixed and adjustable rate construction loans. You can also add a construction loan to your existing mortgage.

TD Bank offers the following:

  • Interest-only payments during the construction phase
  • Construction loan minimum: $100,000
  • Down payment: Starts at 0% for VA loan and 3.5% for FHA loan
  • Rates vary depending on loan programs and borrower qualifications

Best for Bad Credit : FMC Lending


FMC Lending

FMC Lending

  • Minimum credit score: None
  • Loan amounts: No minimum or maximum amount
  • Down payment requirement: 20%–30%
Pros
  • No minimum credit score required to qualify

  • Potentially fast closing times

Cons
  • May require a relatively high down payment

  • Limited state availability

  • Relatively short loan terms

Why We Chose It

FMC Lending is based in California and is a relatively young business. It focuses on funding equity-based deals as a private lender and it specializes in custom loan solutions. It’s a direct lender that offers commercial, residential, construction, multi-family, and land loans, as well as cash outs and refinances. It also offers no doc, no FICO, and stated-income loan programs.

FMC Lending is an attractive choice if your credit score is low, you work for yourself, or have a fluctuating income. FMC Lending is our choice for best construction loan lenders for bad credit because it offers loans with no minimum credit score, works with customers who wouldn’t qualify for traditional funding, and they have no minimum loan limits. 

FMC Lending offers the following:

  • Interest-only loans
  • 1–5 year loan terms (most common), but some go up to 15 years
  • No construction loan minimum or maximum
  • Single loan closing: Purchase and construction costs
  • No credit score minimum 
  • Variable rates, depending on loan programs and borrower qualifications but typically start around 8%

FMC Lending has mixed online third-party customer reviews. Some customers had trouble with on-time closings and loans, but others appreciated that FMC closed loans that other companies wouldn’t close and offered several different loan programs.

Best for First-Time Borrowers : Wells Fargo


Wells Fargo Logo

 Wells Fargo Logo

  • Minimum credit score: 620
  • Average days to closing: 30–90
  • Licensing: Nationwide
Pros
  • Online application assistance

  • Offers a variety of loan types

  • Benefits and grants for first-time and low-income homebuyers

Cons
  • Credit score requirement may be too high for some

  • Closing may take 60 days

Why We Chose It

Wells Fargo is a well-known banking institution with a rich history dating back to the mid-1800s. It's based in San Francisco and has expanded over the years and now includes full banking services, home loans, construction loans, small business, personal loans, and commercial loans and investments.

We chose Wells Fargo as our best construction loan lender for first-time borrowers because most have a lot of questions, and Wells Fargo has individual mortgage consultants to help. You can also contact them in person, online, or by phone. Another attractive feature is the Interest Rate Lock program which can lock in your interest rate for up to 24 months while choosing a type of loan and a builder. 

Wells Fargo offers the following:

  • In-house underwriting so loans can go to closing sooner, although the time frame does depend on the type of loan
  • Different types of construction loans, including new construction and partially completed homes
  • Minimum FICO score: 620
  • 6–24 month rate locks with a non-refundable rate lock fee
  • Down payment: Starts at 0% for VA loan and 3.5% for FHA loan, but the average is 11% for a construction loan
  • Rates vary depending on loan programs and borrower qualifications

Best for Low Down Payment : GO Mortgage


GO Mortgage logo

GO Mortgage

  • Loan terms: 30 years
  • Loan types: FHA, VA, USDA, Fannie Mae
  • Minimum credit score: 580
Pros
  • Offers a variety of loan types

  • Low credit score requirement for some loan types

  • One-time close construction loans

Cons
  • Fannie Mae construction loans require a 680 credit score

  • Limited state availability

Why We Chose It

GO Mortgage operates several brands, including singleclosing.com, which provides construction loans. It's a relatively young company and is headquartered in Brookfield, Wisconsin, and combines technology with old-fashioned customer service. GO Mortgage offers home loans, construction loans, VA loans, jumbo loans, FHA loans, and reverse mortgages. 

GO Mortgage is our pick for the best construction loan lender with a low down payment because it offers loans that require no down payment and others that only require a 5% down payment. In fact, GO Mortgage specializes in low down payment government-backed loans. It also lends in 38 states plus Washington D.C., and its lending team has advanced training in government-backed construction loans. 

GO Mortgage offers the following:

  • Single-close construction loans to reduce closing costs
  • No payments during the building phase on FHA, VA, and USDA loans
  • Construction loan minimum: $125,000
  • Minimum FICO score: 580
  • Down payment: Starts at 0% for VA loan and 3.5% for FHA loan
  • Rates vary depending on loan programs and borrower qualifications

Best for Low Interest Rate : First National Bank


First National Bank

First National Bank

  • Interest rates: Fixed-rate
  • Minimum down payment: 20% or more
  • Financing: Up to 90%
Pros
  • Interest-only loans during construction

  • Offers loans nationwide

  • Provides up to 90% financing

Cons
  • Only offers fixed-rate mortgages

  • Required credit score not disclosed online

Why We Chose It

First National Bank is a Maine community bank with 18 branches throughout the state. Although it does most of its business in Maine, it also works with a network of lenders who offer nationwide loans. It offers business and personal banking services, mortgages, construction loans, business loans, and investment services.

We chose First National Bank as our best construction loan lender for a low interest rate because it offers interest-only payments during the construction phase. These payments are less than a typical payment made up of principal and interest. The bank also helps you further reduce costs by offering a permanent loan after the home is complete or after twelve months, so you only pay one set of closing costs. 

First National Bank offers the following:

  • One-time closing package to reduce closing costs
  • Fixed interest rates and interest-only loans during the construction phase
  • Down payment: Typically 20% but may finance more with PMI (Private mortgage insurance) approval
  • Rates vary depending on loan programs and borrower qualifications but are said to be competitive

Best for Online Borrowing : Normandy


Normandy

Normandy

  • Loan amount: $75,000 minimum
  • Licensing: 15 states
  • Minimum credit score: None
Pros
  • Potentially fast loan closing times

  • No minimum credit score for some loan programs

  • Low minimum loan amount

Cons
  • Limited state availability

  • Down payment of 10%–25%

Why We Chose It

Normandy has been in business since 1985 and specializes in construction and bridge loans. It’s a direct lender for businesses and consumers based in Rochester, NY, but lends in 15 states and has funded over $900 million in loans. 

We chose Normandy as our best construction loan lender for online borrowing because it offers the convenience of loan services online. Specifically, you can get pre-qualified for a construction loan online, request a draw online, and make loan payments online. Normandy also takes a customer-oriented approach to lending and assigns one underwriter and one senior credit manager to each borrower, making it easy to get your questions answered and timely updates on the loan process.

Normandy offers a plethora of loans, including commercial and residential loans, land loans, and agricultural loans. It also offers different types of construction loans, including loans for building the home yourself and loans for hiring a builder.

Additional features include: 

  • In-house underwriting so loans can go to close as sooner. Prequalification happens within 3-5 days, and a timeframe of no more than 30 days is standard.
  • Construction loan minimum: $75,000
  • Minimum FICO score: There are loan programs with no minimum credit score
  • Down payment: Typically ranges from 10%–25%
  • Rates vary depending on loan programs and borrower qualifications but are usually 8%–11%
  • 1–4 family home construction loans 

Final Verdict

We picked BuildBuyRefi as our top construction loan lender thanks to its low rates and comprehensive set of services. It allows you to finance everything from the land to the home, with in-house underwriting to help make the experience as smooth as possible.

Frequently Asked Questions

What Is a Construction Loan?

A construction loan is a type of short-term loan that a borrower or a builder uses to finance the building phase of a new home. It can generally be used only on a primary residence, and in some cases, a vacation home. A construction loan typically can’t be used on a property you’re not going to live in unless it’s a commercial loan. 

Construction loans typically last for one year and transition into a conventional long-term loan. There are different types of construction loan programs for a variety of borrowers. A popular type of construction loan is a single-close loan which combines the construction loan and the permanent loan into one mortgage to save money on closing costs. 

Who Should Get a Construction Loan?

You should get a construction loan if you’re a builder or borrower who needs to finance a portion of the home you’re building. You may also choose to get a construction loan if you’re remodeling your current home, planning to build a new home yourself, or hiring a builder to build a new home on a piece of land you’re purchasing. 

Generally, it’s not a good idea to get a construction loan if you’re renovating a current property. A home equity loan or line of credit is usually a more affordable alternative. You don’t want to get a construction loan if there’s no flexibility in your budget because it’s likely that construction can take longer than expected. Additionally, costs can increase based on external factors like weather and the availability of materials and supplies.

How Much Do Construction Loans Cost?

Construction loan costs vary depending on the size of the loan, the property location, the type of loan, the type of lender, and the borrower's qualifications. There isn't a one-size-fits-all construction loan. However, common construction loan requirements include:

  • Minimum loan: $75k or higher, which varies by lender
  • Minimum FICO score: 620 for most lenders
  • Minimum down payment: 5% for government-backed loans and usually 10%–25 % for non-government backed loans
  • You need to own the lot or be purchasing the lot as part of the loan

Keep in mind you may pay 1% or more above prime interest rates, and you will need to pay closing costs which vary by state and average about 6% of the cost of the house. If you don't already own the land, you will also need to factor the cost of the land into your budget. Usually, it can be rolled into the loan.

When Does Construction Loan Repayment Begin?

Typically, lenders will require that you make monthly interest-only payments during the construction phase, and then the principal will be repaid once construction is finished. However, government-backed loans generally don’t require any payments until the construction is complete. After that, you’ll make monthly payments for the duration of the loan as you would a standard mortgage or other loans.

How Are Construction Loans Different from Improvement Loans?

Construction loans are loans you obtain to build a new home or real estate project, whereas improvement loans are those you secure to renovate, improve, or refurbish a property you already own.

Since lenders generally consider construction loans riskier than improvement loans because there isn’t a structure yet, the borrower could decide to walk away, and construction could be delayed or go over budget. As a result, the construction loan qualifications are stricter than those for an improvement loan.

You can also use a personal loan, home equity loan, or home improvement line of credit for improvements and new construction. However, since these loans are secured loans and are typically more expensive, they’re not generally recommended for new construction.

How We Chose the Best Construction Loan Lenders

We reviewed more than a dozen construction loan lenders before choosing the top seven. Our top choices were based on the types of loan programs they offer, their down payment and minimum loan requirements, as well as their interest rates. We further evaluated the best construction loan lenders based on their company reviews and third-party ratings. 

Our top contenders had competitive interest rates, were available to an array of borrowers, offered multiple types of loan programs, and had mostly positive reviews.

Best Construction Loan Lenders

Best Construction Loan Lenders

Article Sources
  1. U.S. Census Bureau. "Monthly New Residential Construction."

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