If you want to design and build your new home from the ground up, you’ll need a construction loan. 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. Plan on a lot more paperwork, inspections, and approvals though.
We reviewed 24 lenders before selecting the final seven, each one the best in its own category. We compared how beneficial they are to you based on various borrower profiles, and dug into the interest rate range they offered, as well as their down payment and credit requirements.
The 7 Best Construction Loan Lenders of 2021
- Nationwide Home Loans Group, a Division of Magnolia Bank: Best Overall
- FMC Lending: Best for Bad Credit Scores
- Nationwide Home Loans, Inc.: Best for First-Time Buyers
- Normandy: Best Online Borrower Experience
- GSF Mortgage Corporation: Best for Low Down Payments
- TD Bank: Best for Flexible-Use Construction
- VA Nationwide Home Loans: Best for Veterans
Nationwide Home Loans Group, a Division of Magnolia Bank: Best Overall
We chose Nationwide Home Loans Group as the best construction lender overall because it combines up to three loans into one closing process, lends in all 48 states, their loan officers are available seven days a week, their programs offer the lowest down payment requirements, and they offer lower rates than competitors.
Programs available with up to 100% financing
Lending in 48 states
Can finance land purchase, construction loan, and permanent mortgage into one rate-locked closing
One combined loan could translate into higher rates on the final permanent mortgage
640 minimum credit score
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 48 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 all 48 states, is why they won our best overall category.
FMC Lending: Best for Bad Credit Scores
FMC Lending is the best option for borrowers with bad credit scores because they have construction loan programs that do not require the borrower to report their credit score.
No credit score minimum
Can close in as fast as seven days
Stated income, no proof needed
Prior bankruptcy is allowed
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
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 has no minimum or maximum loan limitations. They offer tailored programs that range from one to seven years, and in certain cases they will go up to 15 years. In each of these scenarios, they have an interest-only option and amortization based on 30 to 40 years.
Interest rates for their construction loans range from 7.99% to 10.99%, some with 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.
Nationwide Home Loans, Inc.: Best for First-Time Buyers
Nationwide Home Loans, Inc., is best for first-time home buyers because they specialize in low down payment finance programs and have a large customer service team directly connected to the CEO to lead you through the construction financing process.
One Time Close construction to permanent loan
Low and no down payment options
Borrower does not need to make payments until the certificate of occupancy is issued
Can be used to buy a manufactured or modular home land package
Only lends in California, Colorado, Idaho, Montana, Oklahoma, North Dakota, Washington, and Texas
Nationwide Home Loans, Inc., is a regional lender focused 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 30 years. 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 2018 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.
Normandy: Best Online Borrower Experience
Normandy’s website enables borrowers to apply for pre-qualification, request a draw for their loan after its been approved, and make online payments. Online control of the money flow empowers the borrower to keep their project on time and on budget, making Normandy the best online borrower experience of our review.
Online pre-qualification and management of the loan after it is approved
They fund and service 100% of their loans
Can close in 21 days
Loan amounts up to 90% of the appraised value for loans
Land purchase may be included in the construction loan, but only up to 75% of the lot purchase price
Must make interest-only payments
Normandy is headquartered in Rochester, NY, but is fully licensed to offer their construction loan in 15 states. Their loan amounts range from $75,000 to $3 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 $510,400 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.
GSF Mortgage Corporation: Best for Low Down Payments
GSF Mortgage Corporation, our best lender if you want a low down payment for your construction loan, earned the top ranking because it specializes in government-backed loan programs that allow 0% to 5% down payments.
Licensed in 32 states and Washington, D.C.
Dedicated construction lending team with advanced training in government agency loans
No payments during build on FHA, VA, and USDA loans
Rates not published on website
Credit score minimums not published on website
Based in Wisconsin, GSF Mortgage started in 1995 and in 2018 launched its Single Close Construction Loan. This loan, available in 32 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, typically within one percentage point. For a single-close construction loan, plan on paying 1.5% to 3% higher, depending on your credit score. Your credit score typically cannot be below 620, and the minimum loan amount is $125,000. 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. For example, the VA will only guarantee up to $510,400 even through GSF, but any lender could give you a loan for much more.
GSF 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.
TD Bank: Best for Flexible-Use Construction
TD Bank wins best construction lender for flexible use. It allows the borrower to either finance just the land and construction, just the construction, or wrap them all into a single-close mortgage loan, plus tuck in a home renovation construction loan into an existing mortgage.
Single-close or double-close options
Fixed or adjustable rate options
Flexible down payment options
Must make interest-only payments during construction; no payment deferment
Rates and credit score minimums not published on website
TD Bank was founded in 1852 in Portland, Maine. Their construction loan programs include land and construction, construction-only if you already own the land, and combined single-close loans.
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 double and single closes.
VA Nationwide Home Loans: Best for Veterans
VA Nationwide Home Loans is the best lender for veterans who want a construction loan to build their home because they finance in all 50 states, have programs with up to 100% financing, and keep the process simple and less expensive with a single closing.
Programs available with up to 100% financing
Experienced loan officers that close VA loans every day
Lending in all 50 states
Can finance land purchase, construction loan, and permanent mortgage into one rate-locked closing
Second homes, log homes, and multifamily properties do not qualify
640 minimum credit score
True to its name, VA Nationwide Home Loans lends in all 50 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 $484,350 (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 all 50 states with up to 100% financing available makes VA Nationwide Home Loans the best VA construction lender.
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 to 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.
How We Chose the Best Construction Loan Lenders
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.
Department of Housing and Urban Development. "Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund." Accessed November 19, 2020.