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 1.38 million housing units were started—a 7% increase from 2019. 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, their down payment and minimum loan requirements as well as their interest rates. Read on to see which construction loan lender is right for you. 

The Best Construction Loan Lenders of 2021

Best Overall : BuildBuyRefi


Build Buy Refi

Build Buy Refi 

BuildBuyRefi, formerly Nationwide Home Loans Group, is a division of Magnolia Bank. The company has over 100 years of combined experience, and Magnolia Bank has an A+ rating with the Better Business Bureau. Customers like that someone is available to assist them throughout the purchase process and that their emails and phone calls are responded to swiftly. 

We chose BuildBuyRefi as our best overall construction loan lender because it lends in all 50 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: $125,000
  • Minimum FICO score: 620
  • Down payment: Starts at 0% for VA loan and 3.5% for FHA loan (as of February 2021)
  • Rates vary depending on loan programs and borrower qualifications

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

Runner-Up, Best Overall : TD Bank


TD Bank

TD Bank 

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
  • Minimum FICO score: 620, but it depends on debt-to-income ratio and type of loan
  • Down payment: Starts at 0% for VA loan and 3.5% for FHA loan (as of February 2021)
  • Rates vary depending on loan programs and borrower qualifications

Customers also appreciated their construction loan education resources online and the ability to check their loan status online.

Best for Bad Credit : FMC Lending


FMC Lending

FMC Lending 

FMC Lending is based in California and has been in business since 2005. 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
  • 1–7 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% (as of February 2021)

FMC Lending has mixed reviews. Some customers had trouble with on-time closings and loans going through 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

Wells Fargo

Wells Fargo is a well-known banking institution and has 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, and personal loans, as well as 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 Extended Rate Lock Program which can lock in your interest rate for up to 24 months while you choose 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 (as of February 2021)
  • Rates vary depending on loan programs and borrower qualifications

Although Wells Fargo is not rated by the Better Business Bureau and has just a one-star customer review rating, these are mostly on the banking and residential mortgage side. 

Best for Low Down Payment : GSF Mortgage Corporation


GSF Mortgage Corporation

GSF Mortgage Corporation 

GSF Mortgage Corporation operates several brands including singleclosing.com which provides construction loans. It was founded in 1995 in Brookfield, Wisconsin, and combines technology with old-fashioned customer service. GSF offers home loans, construction loans, VA loans, jumbo loans, FHA loans, and reverse mortgages. 

GSF 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, GSF specializes in low down payment government-backed loans. It also lends in 32 states plus Washington D.C., and its lending team has advanced training in government-backed construction loans. 

GSF 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: 620
  • Down payment: Starts at 0% for VA loan and 3.5% for FHA loan (as of February 12, 2021)
  • Rates vary depending on loan programs and borrower qualifications

GSF has an A+ rating with the Better Business Bureau. Customers give the company positive reviews and like that it provides friendly, helpful, and timely customer service, and makes the home buying process easy.

Best for Low Interest Rate : First National Bank


First National Bank

 First National Bank

First National Bank is a Maine community bank with 16 branches throughout the state. Although it does the majority of its business in Maine, it also works with a network of lenders who offer loans nationwide. 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

First National Bank has an A+ rating with the Better Business Bureau and is accredited.

Best for Online Borrowing : Normandy


Normandy

Normandy 

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 $800 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 which makes it easy to get your questions answered and to get 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 soon as 25 days, although the timeframe does depend on the type of loan
  • 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% (as of February 2021)
  • 1–4 family home construction loans 

Normandy has an A+ rating with the Better Business Bureau. Customers say the company is easy to work with, offers fast closings, and approves loans that other banks don’t.

FAQs

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 that you’re not going to live in unless it’s a commercial loan. 

Construction loans typically last for one year and then 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: Normandy 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 qualifications for a construction loan are stricter than the ones 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.

Article Sources

  1. U.S. Census Bureau. "Monthly New Residential Construction, December 2020." Accessed Feb. 15, 2021.

  2. Better Business Bureau. "Magnolia Bank." Accessed February 15, 2021.

  3. Facebook. "FMC Lending." Accessed February 12, 2021.

  4. Better Business Bureau. "Wells Fargo." Accessed February 15, 2021.

  5. Better Business Bureau. "GSF Mortgage." Accessed February 15, 2021.

  6. Zillow. "GSF Mortgage." Accessed February 15, 2021.

  7. Better Business Bureau. "First National Bank." Accessed February 15, 2021.

  8. Better Business Bureau. "Normandy Corporation." Accessed Feb. 15, 2021.