Best Construction Loan Lenders

Nationwide Home Loans Group is our top pick due to its low down payment requirements and rates

Fact checked by Hans Daniel Jasperson

Construction loans allow landowners to borrow money to build a home from the ground up. While a traditional mortgage, also called a permanent loan, will help you buy an existing house, starting with raw land requires a construction loan. While these loans are a bit more difficult to obtain and often attached to higher rates, many lenders can finance your project.

The best construction loan lenders offer low rates and flexible loan amounts. They also feature low down payment and credit requirements that make it easier for borrowers to qualify. Top lenders offer construction loans in a wide range of geographic areas across the country. Many lenders also offer multiple different types of construction loans depending on your specific situation.

Best Overall: Nationwide Home Loans Group

• Starting interest rate: Varies
• Minimum credit score: 640
• Loan terms: Varies

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Why We Chose It

Nationwide Home Loans Group is a great overall choice for a construction loan with loans available in all 50 states, low interest rates, and low down payment requirements.

Pros & Cons

Pros

• Available in 50 states

• Low rates

• Low down payment requirements

Cons

• 640 minimum credit score required

• Minimum loan amount of $150,000

Overview

Nationwide Home Loans Group is powered by The Federal Savings Bank, a veteran-owned, federally-charted bank. The Nationwide Home Loans Group construction loan is available in all 50 states.

Their construction loan size minimum is $150,000. No mortgage payments are collected until the construction is complete.

The lender requires the borrower’s median of three credit scores to be at least 640. Down payments vary depending on the particular loan program. For example, their VA construction loan can be as low as 0% down, and their FHA loan can be as low as 3.5% down. Compared to most construction lenders requiring 20% down, Nationwide can offer these low down payment programs at low rates in a combined loan in all 50 states.

Best for Bad Credit Scores: FMC Lending

• Starting interest rate: Varies
• Minimum credit score: None
• Loan terms: Varies

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Why We Chose It

If you’re looking for a construction loan and have less than stellar credit, FMC Lending is a great option, featuring fast funding and no minimum credit score requirements.

Pros & Cons

Pros

• No credit score minimum

• Can close in as fast as seven days

• Stated income, no proof needed

• Prior bankruptcy is allowed

Cons

• Down payment requirements of 20% to 30%

• Higher interest rates than other lenders

• Most loan terms are short and range from one to seven years

Overview

FMC is a full-service private money lender focused on borrowers who have been through tough times and don’t fit the traditional bank lending criteria. They offer asset-based lending as opposed to credit-based lending, so they can be more creative with their loan programs because the loans are backed by collateral.

FMC is very flexible on loan terms. Some programs have only short terms and some can offer very long terms. Everything will vary with your situation and chosen program.

Interest rates for their construction loans range tend to be higher than those of a normal mortgage. However, some have no prepayment penalties. With FMC, you’ll be able to roll the purchase and construction costs into a single loan closing. 

FMC can finance the combined loan-to-value (CLTV) up to 100%, so you can bring other loans or property collateral to the deal to make it work.

FMC is the best option for borrowers with low credit scores because they allow you to apply for a construction loan and a permanent mortgage combined into one program without needing to show proof of your credit score.

Best for First-Time Buyers: Nationwide Home Loans, Inc.

• Starting interest rate: Varies
• Minimum credit score: Varies
• Loan terms: Varies

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Why We Chose It

Nationwide Home Loans, Inc. is a great option for first-time buyers, with low to no down payment options and helpful customer support.

Pros & Cons

Pros

• Low down payment requirements

• Flexible credit requirements

• Full-service project coordination

Cons

• Only available in nine states

Overview

Nationwide Home Loans, Inc., is a regional lender focused on nine states. They have an efficient online presence for borrowers to connect with specialists for each state where they plan to build.

The down payment requirements relate to the loan program for which you qualify. If you are a veteran and qualify for a VA construction loan, there is no minimum or maximum limit. For an FHA loan, maximums depend on the area you are in. FHA loan limits are updated annually.

Rates for their One Time Close loans are locked in for the term of the loan. You only go through the process once to finance the land, construction, and home mortgage. This not only keeps your closing costs low but also gets you a rate that is closer to the lower permanent financing rates rather than the typical construction loan rates. Credit requirements are flexible because the company caters to self-employed individuals who have trouble showing a steady income, as well as borrowers who have a few nicks and scrapes in their credit history.

The down payment requirements range from 0% for VA loans to 3.5% for FHA loans. First-time homebuyers seem to gravitate towards FHA loans because of the low downpayment and easier approval. In fact, in 2022, 83.5% of FHA loans went to first-time homebuyers.

Nationwide Home Loans, Inc., wins best for first-time home buyers because they have loan officers that provide a full-service experience, coordinating with appraisers, title companies, the builder, and other third parties necessary to make your construction project a success. Their specialization in low down payment programs, like VA and FHA, and their One Time Close service make them one of the most affordable lenders for first-time home buyers.

Best Online Borrower Experience: Normandy

• Starting interest rate: Varies
• Minimum credit score: Varies
• Loan terms: Varies

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Why We Chose It

For borrowers looking to secure a loan from an online lender, Normandy offers a seamless application process, with fast funding and the option to prequalify.

Pros & Cons

Pros

• Borrowers can prequalify

• Flexible loan amounts

• 30-day average closing time

Cons

• Required down payment of 10% to 20%

• Only available in 15 states

Overview

Normandy is headquartered in Rochester, NY, and is fully licensed to offer its construction loan in 15 states. Loan amounts range from $95,000 to $5 million. There are several construction loans, such as a loan if you are the actual builder, another if you are hiring a builder, and loans to finance a newly built home that a builder built on speculation. Normandy also offers renovation construction loans for when the house is built but needs extensive renovation work requiring a licensed contractor.

Normandy could qualify you for a 10% down payment for properties appraised at $726,200 or less, 20% down for properties between $726,200 and $1 million, and 25% down for properties over $1 million. You can wrap the land purchase into the construction loan, but you’ll still have to come up with 25% of the land’s purchase price in cash.

Normandy’s construction loan rates vary depending on your credit score, the size of your down payment, and your income. You must prequalify to see them. Credit score minimums are not published on their website, but they will contact you with a customized terms proposal when you complete their online prequalification form.

Normandy has an easy-to-find section on its homepage for borrowers to apply for pre-qualification, request construction draws, and make payments toward their loans. This convenience makes Normandy our pick as the best online borrower experience.

Best for Low Down Payments: GO Mortgage Corporation

• Starting interest rate: Varies
• Minimum credit score: 640 to 680
• Loan terms: 30 years

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Why We Chose It

GO Mortgage Corporation features low down payment requirements for construction loans with a dedicated lending team to help you through the process.

Pros & Cons

Pros

• Licensed in 40 states

• Low down payment requirements

• Experienced with government-backed loan programs

Cons

• 640 to 680 minimum credit score recommended

• Minimum loan amount of $175,000

• Can’t use a loan for investment properties

Overview

Based in Wisconsin, GO Mortgage started in 1995 and the single close construction loan is its specialty. This loan, available in 40 states, works within the parameters of the government-backed mortgage programs known as the VA, Fannie Mae, FHA, and USDA. Therefore the credit scores, interest rates, down payment percentages, and minimum and maximum loan amounts are regulated by those programs.

For example, if GSF qualifies you for the FHA program, your down payment can be as low as 3.5%. For the VA or USDA loan programs, you may qualify for no down payment. If you use a Fannie Mae program, your down payment could be as low as 5%.

Loan interest rates for these government programs are very close to each other and will vary depending on your credit score. The minimum loan amount often is $175,000. The minimum credit score for GO’s single close construction loan is 640. However, 680 is the minimum score for the Fannie Mae program. There is no maximum loan amount for construction loans, but there are some limitations to how much of the loan the government agency will guarantee. The VA will normally guarantee loans up to $726,200, for 2023. However, in more expensive counties they will guarantee up to $1,089,300 through GO or other lenders.

GO Mortgage Corporation has created a business model focused on a highly trained construction lending team with expertise in the low down payment government agency programs, so they have earned our nod for the best construction lender for you if your primary goal is a low down payment.

Best for Flexible-Use Construction: TD Bank

• Starting interest rate: Varies
• Minimum credit score: Varies
• Loan terms: 30 years

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Why We Chose It

TD Bank wins our award for best flexible-use construction lender because of their ability to blend features tailored to what the borrower wants and needs, such as adjustable and fixed rates, and a flexible-use, single close program.

Pros & Cons

Pros

• Flexible single close can be used if you already have a loan for the land

• Fixed or adjustable rate options

Cons

• Must make interest-only payments during construction; no payment deferment

• Rates and credit score minimums not published on website

Overview

TD Bank was founded in 1852 in Portland, Maine. Its single close construction loan is flexible and can be used if you already own the land or if you have an existing loan on the land. In that case, they will disperse money to pay that loan’s balance off and roll it into their single close loan.

Credit score minimums are not published. Credit scores are taken into account along with other factors, such as the size of the down payment, the borrower’s income, and how much existing debt the borrower already carries. The same factors also dictate how TD Bank calculates your interest rate options. For example, you may have an adjustable-rate interest-only loan for the 12-month construction period, which automatically can roll into a fixed-rate loan for a 30-year mortgage on the finished property.

Down payment requirements are at least 20% for traditional financing.

If you need a flexible construction loan, TD Bank is a great option, with single close loan options for just construction or construction and land.

Best for Veterans: VA Nationwide Home Loans

• Starting interest rate: Varies
• Minimum credit score: 640
• Loan terms: Varies

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Why We Chose It

Single close convenience in every state with up to 100% financing available makes VA Nationwide Home Loans the best VA construction lender.

Pros & Cons

Pros

• Available in 50 states

• No down payment requirements

• One-time and two-time close options

• Available for second homes or multi-family homes

Cons

• 640 minimum credit score recommended

Overview

True to its name, VA Nationwide Home Loans lends in all 50 states. You can check your home’s eligibility for their program using their simple and short online form. 

Their featured loan is a single close loan that lets you combine the purchase of the land, the construction of the house, and the mortgage all in a single rate-locked loan. No payments are due during the construction period. VA Nationwide Home Loans could qualify you for a 0% down payment, but you would still need to pay cash for the VA funding fee. 

VA Nationwide can offer loans up to $3,000,000 or more with its one-time and two-time close options.

VA Nationwide Home Loans is a great option for veterans looking for affordable construction loans available in all 50 states and up to 100% financing.

Final Verdict

There are several good options to choose from when it comes to construction loans. Our top pick for a construction loan lender is Nationwide Home Loans Group, which offers flexible, affordable construction loans. There are programs with up to 100% financing available, making these loans a great fit for borrowers who are short on cash. This lender also offers loans to borrowers in 50 states, so borrowers will be able to access a loan in most areas of the country.

If you’re looking to complete the loan process online, Normandy is a good choice, and if you haven’t been able to save the way you’d hoped, GO Mortgage Corporation features low down payments.

Compare the Best Construction Loan Lenders

Company	Starting Interest Rate	Minimum Credit Score	Loan Terms (range)	Maximum Loan Amount
Nationwide Home Loans Group Best Overall	Varies	640	Varies	$3,000,000+ on VA loan options
FMC Lending Best for Bad Credit Score	Varies	None	Varies	Varies
Nationwide Home Loans, Inc. Best for First-Time Buyers	Varies	Varies	Varies	Varies
Normandy Best Online Borrower Experience	Varies	Varies	Varies	$3,000,000
GO Mortgage Corporation Best for Low Down Payments	Varies	640 to 680	30 years	Varies
TD Bank Best for Flexible Use Construction	Varies	Varies	30 years	Varies
VA Nationwide Home Loans Best for Veterans	Varies	640	Varies	$3,000,000+ on VA loan options

Guide to Choosing the Best Construction Loan Lender

Determine Your Construction Loan Need

Before you apply for a construction loan, you should assess your situation in order to determine exactly what type of construction loan will work best for you. You should consider factors including your savings for a down payment, credit score, and overall loan amount when looking for lenders. It’s a good idea to receive quotes from contractors so you have an estimate of how much the total project will cost.

Compare Construction Loan Lenders

There are a few different factors to keep in mind when selecting a home improvement loan or lender:

• Low rates: The lower the rates on your construction loan, the less you’ll end up paying in interest over time. You should look for a loan with rates that are as low as possible.
• Flexible down payment requirements: While some lenders require a standard down payment of 20%, others are more flexible. Depending on how much you have saved up, you should look for a lender with flexible down payment requirements.
• Flexible credit score requirements: Just because you don’t have a perfect credit score doesn’t mean you can’t get a construction loan. Some lenders allow applications from borrowers with fair credit.
• Geographic location: Make sure to choose a lender that services your area.
• Customer support: Look for lenders with a history of high customer satisfaction and robust customer support.

Apply for a Construction Loan 

To apply for a construction loan, there are a few types of documentation you’ll need. These include architectural plans and drawings, your builder’s certifications, building code compliance, and a schedule for periodic inspections. You’ll also need to provide a detailed construction budget and timeline. Before you apply, it’s also a good idea to make sure that your finances are in order. You should make sure that your credit score is as high as possible, that you have a low debt-to-income ratio, and that you have enough savings to cover the cost of a down payment and closing fees.

Frequently Asked Questions

What FICO score do you need for a construction loan?

It varies between loan lenders, but generally, you will need a minimum score of 640 and ideally higher. The higher your credit score, the higher the likelihood that you’ll be approved. However, some construction loan lenders don’t have a minimum credit score requirement, such as FMC Lending.

What are construction loan interest rates?

Interest rate ranges will differ based on whether you have a construction loan to finance just the construction period or whether you have a combined single close loan that blends the construction and the permanent mortgage. The construction-only loan is considered a bit riskier. In general, you can expect construction loans to be a percentage point or two higher than standard mortgage loans.

How do I get financed for construction?

Before you apply, make sure that your finances are in order. Start by improving your credit score if necessary and the savings required for the down payment and closing fees. Once you’re ready, you’ll need to have your documentation organized and on hand when you apply for financing, as well as a detailed construction budget and timeline.

What are the most common construction loans?

There are several types of construction loans: construction-to-permanent, construction-only, renovation, owner-builder, and end loans. Construction-to-permanent loans are the most common and popular type of construction loans for consumers

Methodology

We looked at 24 construction lenders before choosing the best seven. To be named one of our best, we wanted lenders that have a broad geographical reach so that our choices could be used by many.

We looked for lenders with expertise in several construction loan programs so that you’d find several options without the need to interview many firms. We selected companies whose low end of their interest rate ranges was closest to traditional permanent financing, because those are the lowest rates available.

Finally, we favored lenders with lower down payment requirements and lower credit score minimums to expand your chances of finding a competitive construction loan.

Read the original article on Investopedia.