Best Construction Loan Lenders

Nationwide Home Loans Group features low down payment requirements and rates

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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, there are many lenders that can finance your project.

The best construction loans 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 Construction Loan Lenders of 2021

Best Overall : Nationwide Home Loans Group, a Division of Magnolia Bank


Nationwide Home Loans Group

Nationwide Home Loans Group

  • Starting interest rate: Varies
  • Minimum credit score: 640
  • Loan terms: 15 or 30 years
Why We Chose It

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

Pros & Cons
Pros
  • Available in 47 states

  • Low rates

  • Low down payment requirements

Cons
  • 640 minimum credit score required

  • Not available in Alaska, Hawaii, or New York

  • Minimum loan amount of $125,000

Overview

Nationwide Home Loans Group is a division of Magnolia Bank, an independent community bank founded in 1919. The bank has grown its services to lend in all 50 states and originates over $1 billion in home loans annually. However, the Nationwide Home Loans Group construction loan is only available in 47 states.

Their construction loan size minimum is $125,000. Interest rates fluctuate based on the market, but Nationwide’s rate range is 1% to 1.25% higher than traditional mortgages for a pre-built home. 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, the fact that Nationwide can offer these low down payment programs at low rates in a combined loan in 47 states, is why they won our best overall category.

Best for Bad Credit Scores : FMC Lending


FMC Lending

 FMC Lending

  • Starting interest rate: Varies
  • Minimum credit score: None
  • Loan terms: Varies
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 are able to 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. 

They have the ability to 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.


Nationwide Home Loans, Inc.

 Nationwide Home Loans, Inc.

  • Starting interest rate: Varies
  • Minimum credit score: Varies
  • Loan terms: 15 or 30 years
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 8 states

Overview

Nationwide Home Loans, Inc., is a regional lender focused on eight 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, there are maximums depending on the area you are in. FHA loan limits update annually.

Rates for their One Time Close loans are locked in for 15 or 30 year terms. You only go through the process once to finance the land, construction, and home mortgage. This not only keeps your closing costs low, but it also gets you a rate that is closer to the lower permanent financing rates rather than the typical construction loan rates that range 5% to 7% higher. 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 2020 83% 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


Normandy

 Normandy

  • Starting interest rate: Varies
  • Minimum credit score: 620
  • Loan terms: Varies
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

  • 21 day average closing time

Cons
  • Required down payment of 10% to 20%

  • Only available in 15 states

  • 620 minimum credit score recommended

Overview

Normandy is headquartered in Rochester, NY, but is fully licensed to offer their construction loan in 15 states. Their loan amounts range from $100,000 to $5 million. They have 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 for $548,250 or less, and 20% down for properties appraised above that mark. 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. In general, credit scores below 620 are more difficult to finance.

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 loan. This convenience makes Normandy our best for online borrower experience.

Best for Low Down Payments : GO Mortgage Corporation


GSF Mortgage Corporation

 GSF Mortgage Corporation

  • Starting interest rate: Varies
  • Minimum credit score: 640 to 680
  • Loan terms: 30 years
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
  • Available in 35 states

  • Low down payment requirements

  • Experienced with government-backed loan programs

Cons
  • 640 to 680 minimum credit score recommended

  • Minimum loan amount of $125,000

  • Can’t use a loan for investment properties

Overview

Based in Wisconsin, GO Mortgage started in 1995 and the Single Close Construction Loan is their specialty. This loan, available in 35 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 3%.

Loan interest rates for these government programs are very close to each other, typically within one percentage point. For a single-close construction loan, plan on paying 1.5% to 3% higher, depending on your credit score. The minimum loan amount often is $125,000. The minimum credit score for GO's single close construction loan is 640. However, 680 is minimum score for the Fannie Mae program. There is no maximum loan amount for the construction loans, but there are some limitations to how much the government agency will guarantee the loan for. The VA will normally guarantee loans up to $510,400. However, in more expensive counties they will guarantee up to 765,600 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


TD Bank

 TD Bank

  • Starting interest rate: Varies
  • Minimum credit score: Varies
  • Loan terms: 30 years
Why We Chose It

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. 

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

  • Fixed or adjustable rate options

  • Flexible down payment 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. Their 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 score is 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, but if you qualify for one of the government agency-backed programs, your down payment could be in the range of 0% to 5%.

TD Bank has won 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.

Best for Veterans : VA Nationwide Home Loans


VA Nationwide Home Loans

VA Nationwide Home Loans

  • Starting interest rate: Varies
  • Minimum credit score: 640
  • Loan terms: 15 or 30 years
Why We Chose It

VA Nationwide Home Loans is a great option for veterans looking for affordable construction loans, with availability in 47 states and up to 100% financing.

Pros & Cons
Pros
  • Available in 47 states

  • No down payment requirements

  • Single-close loan option

Cons
  • 640 minimum credit score recommended

  • Not available in Alaska, Hawaii, or New York

  • Not available for second homes or multi-family homes

Overview

True to its name, VA Nationwide Home Loans lends in all 50 states. However, their VA construction loan is only available in 47 states. You are able to 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 15- or 30-year 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 create much larger loans, but the VA only guarantees up to $548,250 (more in high cost counties). Nationwide’s interest rates range from 1% to 1.25% higher than traditional mortgages for a pre-built or existing home. 

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

Final Verdict

There are several good options to choose from when it comes to construction loans. Many  lenders have flexible minimum deposit and credit score requirements, making it easy for borrowers without a ton of money saved up to qualify. Our top pick for a construction loan lender is Nationwide Home Loans Group.

Nationwide Home Loans Group 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 47 states, so borrowers will be able to access a loan in most areas of the country.

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 15 or 30 years $548,250
FMC Lending
Best for Bad Credit Score 
Varies  None  Varies  Varies 
Nationwide Home Loans, Inc.
Best for First-Time Buyers 
Varies  Varies  15 or 30 years  Varies 
Normandy
Best Online Borrower Experience 
Varies  620  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  15 or 30 years  $548,250 

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 that you should keep in mind when selecting a home improvement loan or lender. These include:

  • 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 with 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: You should 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 in savings to cover the cost of a down payment and closing fees.

What Is a Construction Loan?

A construction loan is a short-term loan, usually lasting 12 months, that a builder or home buyer uses to finance building a new home. Different lenders have variations on construction loans. For example, there are loans for builders, loans for home buyers, loans for just the construction period, and combined loans, sometimes called single-close loans, which wrap the financing of the land purchase, the home construction, and the permanent mortgage into a single approval process.

Can You Get a Construction Loan With 10% Down?

Yes, you can get a construction loan with 10% down but it depends on the lender and the program they use. Traditionally financed construction loans will require a 20% down payment, but there are government agency programs that lenders can use for lower down payments. Lenders who offer VA and USDA loans are able to qualify borrowers for 0% down. For FHA loans, your down payment could be as low as 3.5%. If the lender uses a Fannie Mae loan, your down payment could be only 5%.

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 together. The construction-only loan is considered a bit riskier. The rates for these are in the 5% to 10% range, and typically at least 5% higher than traditional permanent mortgage rates to buy an existing home. 

Combined single-close construction loans are a bit closer to the lower permanent financing loan rates because they account for a much longer term, such as 30 years. Your credit history, and sometimes the size of your down payment, will impact your construction loan interest rate.

How Do You Qualify for a Construction Loan?

A lender is going to look at much more than just your credit score and down payment amount before it approves your construction loan. You’ll need to produce architectural plans and drawings, your builder’s certifications, and a detailed construction budget and timeline. The lender will also want to see building code compliance and a schedule for periodic inspections to authorize the phased release of the construction loan funds.

From the borrower, most lenders will want a credit score above 700 for traditional financing, but with special programs, the minimum could be in the low 600s. Your down payment will need to be at least 20% unless you qualify for one of the government agency loan programs. Your income, and especially your debt to income ratio, will matter as well. 

Methodology

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

We looked for lenders with expertise in several construction loan programs so that you’d find several options without needing to use up your valuable time interviewing many firms. We selected companies whose low end of their interest rate ranges were 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.

Article Sources

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  1. Department of Housing and Urban Development. "Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund." Accessed Nov. 07, 2021.