Best construction loan lenders in 2024
Construction loans are shorter-term loans used to finance a home’s construction or renovation. Here is Bankrate’s guide to some of 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, 640 for FHA loans, 680 for VA loans | Undisclosed | 4.6 |
New American Funding
Learn morein our Bankrate review
Lender details
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
Pros and cons
Green circle with a checkmark inside Pros
Displays current mortgage rates online
Initiatives that focus on serving minority borrowers, including down payment grants
More than 170 branch location
Red circle with an X inside Cons
Not available in Hawaii or New York
U.S. Bank
Learn morein our Bankrate review
Lender details
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
Pros and cons
Green circle with a checkmark inside Pros
Several down payment and closing cost assistance programs
Red circle with an X inside Cons
Discounts for banking customers
Wells Fargo
Learn morein our Bankrate review
Lender details
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
Pros and cons
Green circle with a checkmark inside Pros
Displays mortgage rates online; massive branch network
Will consider non-traditional credit references in application process
Offers low-down payment options to assist lower-income borrowers
Red circle with an X inside Cons
Dialed back its mortgage offerings
No longer offers HELOCs
Below-average customer satisfaction scores and negative past customer reviews
Flagstar Bank
Learn morein our Bankrate review
Lender details
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
Pros and cons
Green circle with a checkmark inside Pros
Convenient online application
Online portal to view recent transactions and manage payments
Red circle with an X inside Cons
Rates somewhat higher compared to other lenders
Mortgage branches not in every state
Old National Bank
Learn morein our Bankrate review
Lender details
Availability: All U.S. states
Loans offered: Conventional, jumbo, FHA, VA, USDA
Credit requirements: 620 for conventional loans, 640 for FHA loans, 680 for VA loans
Down payment minimum: Undisclosed
Where to find: Branch locations and online
Pros and cons
Green circle with a checkmark inside Pros
Branches plus online banking
First-time homebuyer and down payment/closing cost assistance programs in some states
Special loan programs for first responders, professors and physicians
Red circle with an X inside Cons
Branch locations limited to five states
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.
Applying 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:
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.
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.
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
What’s the difference between a construction loan and renovation loan?
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.
What are construction loan interest rates?
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.
Is a construction loan harder to get than a traditional mortgage?
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.
Methodology
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.
