Construction Loan Lenders: Are you looking to build your dream home or renovate your current home? You’re not alone. During the first three quarters of 2023, 134,000 homes were built by owners or contractors, according to data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. For those looking to build a new home From the ground up, transform a fixer-upper, or start a substantial home renovation, a construction loan can lay the foundation for your ideal abode.
4 Best Construction Loan Lenders In 2024
4 Best Construction Loan Lenders: However, finding the right financing to build or rehabilitate a home is not always an easy task. To help with this, Keynote USA Guide compiled a short list of the best construction loan lenders with manageable down payment requirements, a variety of loan products, and optimized closing times. When evaluating lenders, we also consider nationwide accessibility, customer ratings, and the scope of the online application process.
Also Read: The Best Loan Company
01. Movement Mortgage Construction Loan
Best for Quick Closing
Rating: 5.0
# Minimum Credit Score: 580
# Minimum Down Payment: 0%
# Days to Close: 7 days
Compare Rates: Compare rates from participating lenders in your area through Bankrate.com
Editor’s Opinion: We love Movement Mortgage for its fast closing times for construction loans – underwriting results within six hours of receiving an application, loan processing within seven days, and closing in just one day.
Pros:
# Fast closing time
# Rate locks up to 360 days
# More than 650 branches in 50 states
Cons:
# Funding for permanent construction is not available in all states
Lender Details
How to Apply: Use the Movement Mortgage website to find a loan officer near you or call a loan services representative. After speaking with a loan officer to determine your credit and financing options, you will need to apply and submit the required financial documents.
Movement Mortgage then begins a streamlined underwriting and underwriting process. If Movement conditionally approves your construction loan, the loan will go through a final underwriting, followed by closing.
Although Movement Mortgage is licensed in all 50 states and Washington, D.C., its construction-to-permanent financing is not available in all states, according to its website. Customer service is available by phone and email Monday through Friday from 8:30 a.m. to 5:30 p.m. to 7 p.m. ET.
Speed: Movement Mortgage processes over 75% of its loans in 7 business days or less.
Eligibility:
# Minimum credit score of 620 for construction loans
# Manufactured homes are not eligible for new construction.
Types of Loans: Movement Mortgage offers several construction loan options, including a single-close permanent construction loan, an FHA construction loan, and a VA construction loan. It also offers condo loans and jumbo construction loans.
02. Northpointe Bank Construction Loan
The Best Construction Loan Options
Rating: 4.5
# Minimum Credit Score: 700
# Minimum Down Payment: 0%
# Days to Close: 30
Compare Rates: Compare rates from participating lenders in your area through Bankrate.com
Editor’s Opinion: Northpointe Bank Mortgage is our lender of choice for offering the best construction loan options thanks to its wide variety of financing options for new homes. These include Northpointe’s construction-to-permanent loan program and the FHA 203(k) renovation loan.
Pros:
# Maximum loan amount of $1.5 million on residential construction loans
# Construction loan terms of 12 to 18 months
# Available in all 50 states and Washington, DC
Cons:
# A minimum credit score of 700 is required for a construction loan
Lender Details:
How to Apply: Contact a Northpointe Bank loan advisor to discuss your goals and determine the best construction loan option. Then, apply online to get pre-approved and prepare to submit the necessary financial documentation to your loan officer, who will begin the underwriting process. After reviewing and verifying your documentation, Northpointe Bank works with a local settlement team to set a closing date. Northpointe offers construction loans in all 50 states and Washington, DC. Customer service is available Monday to Friday from 8 a.m. to 5 p.m. ET to 6 p.m. Eastern time.
Loans for Quick Construction: Northpointe Bank can close within 30 to 45 days. However, if you are purchasing land as part of your construction loan, Northpointe Bank recommends waiting 90 days to close on the loan after the mutual acceptance date.
Eligibility:
# Minimum credit score of 700 for construction loans; Loan amounts over $750,000 require a credit score of at least 720
# Maximum debt-to-income ratio of 43%
Types of Loans: In addition to its FHA 203(k) and permanent construction loan offerings, Northpointe tailors construction loan programs to the scope of your renovations. Additionally, you can get a land loan with low down payment options and no prepayment penalties.
Also Read: The Best Loan Company
03. Primary Residential Mortgage Construction Loan
The Best in Service and Customer Satisfaction
Rating: 4.5
# Minimum Credit Score: 500
# Minimum Down Payment: 0%
# Days to Close: 30
Compare Rates: Compare rates from participating lenders in your area through Bankrate.com
Editor’s Opinion: Primary Residential Mortgage Inc. (PRMI) is recognized by us for best-in-class service and customer satisfaction thanks to high customer ratings. Recent reviews describe PRMI lenders as “patient,” “responsive,” “professional,” and “super attentive.”
Pros:
# Low Minimum Credit Score
# High customer service ratings
Cons:
# Not available in New York
# Limited information about your online construction loans
Lender Details:
How to Apply: First, meet with a member of the PRMI team to determine which home you can purchase and pre-qualify for the loan. Before applying, gather the necessary employment and financial verification documents. You can then begin the online application process.
Once PRMI receives your application, the loan approval process begins. Once approved, review all the documents you will sign at closing. PRMI operates in Washington, DC, and all states except New York. Customer service is available Monday through Friday from 7:00 a.m. to 5:30 p.m. (Mountain Time).
Speed: Most PRMI loans take 30 days or less from application to closing.
Eligibility:
# Minimum credit score of 500 to qualify for a construction loan
Types of Loans: PRMI offers construction loans with a minimum 3.5% down payment for its FHA permanent construction loan product and a 0% down payment for eligible veterans. PRMI also offers USDA single down payment construction loans to qualified buyers in approved areas. Additionally, PRMI offers renovation loans nationwide, including the Fannie Mae HomeStyle Renovation Loan, FHA Limited 203(k) Loan, FHA Standard 203(k) Loan, and Freddie Mac CHOICE Renovation Loans.
Also Read: The Best Loan Company
04. Connexus Credit Union Construction Loan
The Best Online Lender
Rating: 4.0
# Minimum Credit Score: 640
# Minimum Down Payment: 0%
# Days to Close: 30
Compare Rates: Compare rates from participating lenders in your area through Bankrate.com
Editor’s Opinion: We love Connexus Credit Union as the best online lender for construction loans. Their mortgage application process, including closing, is done entirely online, making it a convenient option for borrowers.
Pros:
# Fully digital loan process
# Customer service available on Saturdays
# Operates in all 50 states
Cons:
# Only 15 locations (all located in Wisconsin, Minnesota, and Illinois)
# Membership required
Lender Details:
How to Apply: To apply, you will need to become a member of the Connexus Association and make a one-time donation of $5. Borrowers can apply entirely online, through a mobile app, over the phone, or in person at a branch. Connexus Credit Union loan products are available in all states except Maryland and Washington, DC.
Customer support by phone is available Monday through Wednesday and Friday from 7 a.m. to 5 p.m. to 7 p.m. Central time; Thursdays from 9 a.m. to 5 p.m. to 7 p.m. Central time; and Saturdays from 8 a.m. to 8 p.m. to 1 p.m. Central time. Mortgage department hours of operation are 8 a.m. to 5 p.m. Central time or by appointment outside of those hours.
Speed:
Connexus Credit Union does not disclose its closing times online. The typical timeline from application to closing ranges from 30 to 60 days.
Eligibility:
# Minimum credit score of 640 for construction loans
Types of Loans: Connexus offers permanent construction loans and land or lot loans. Speak to a Connexus representative for more information.
What is a Construction Loan?
A construction loan is short-term financing typically lasting one year or less, used for rehabilitating, remodeling, or building new homes. It covers costs directly related to the construction process, including:
# The cost of the plot of land
# Contractor and materials expenses
# Permits and fees
# Reserves for contingencies and interest
Eligibility: Mortgage lenders usually require borrowers to hire a qualified, licensed contractor with a strong track record rather than acting as their contractors. Construction loans often have higher interest rates than traditional mortgages due to the higher risk for lenders, as there is no home to use as collateral. The higher rates also encourage the timely completion of the project.
Types of Construction Loans
- Construction-Only Loan
This short-term loan finances the construction project. Once completed, the borrower repays the loan in full or refinances it with a new mortgage. - Permanent Construction Loan
Also known as a C2P (Construction-to-Permanent) loan, this finances the construction and then converts to a traditional fixed-rate or adjustable-rate mortgage after completion. This is a one-time closing loan, unlike a two-closing transaction. - Loan for Builder Owners
Designed for borrowers who act as their contractors. Requires proof of licensing and qualifications. - FHA Renewal Loan
The FHA 203(k) loan finances home renovations and is available for purchase or refinancing and rehabilitation through a single mortgage. There’s also a limited version for minor renovations or non-structural repairs, not requiring an FHA-approved consultant. - FHA Permanent Construction Loan
Combines a short-term construction loan with a traditional FHA loan. Covers land purchase, labor, construction material costs, and more, converting to a permanent mortgage once construction is complete. - USDA Construction Loan
Part of the Single Family Housing Guaranteed Loan Program, providing up to 100% financing for new homes in rural areas with populations of 35,000 or less. Property must be a primary residence, and lenders and contractors must be USDA-approved. - VA Construction Loan
Offered in two types: a single-close loan covering all costs with one closing, and a double-close loan with two separate closings. Both require a VA funding fee.
How Does a Construction Loan Work?
Lenders mitigate risk with higher interest rates and stringent criteria, including:
# Minimum down payment of 20% to 25%
# Licensed builder or contractor
# Signed contract with a builder
# Detailed construction plan, business plan, house specifications, and project schedule
# Project evaluation
# Solid credit score (often 720 or higher)
# Excellent cash reserves
# Low Debt-to-Income (DTI) Ratio
Funds are typically disbursed on a “drawdown” schedule as construction progresses. You only pay interest on the portion of the loan used. At the project’s end, you must repay the loan in full, refinance into a traditional mortgage, or apply for a “final loan.”
How to Find the Best Interest Rates for Construction Loans
# Compare various construction loan lenders
# Increase your credit score
# Save for a larger down payment
# Ask about rate locking and floating down options
# Refinance your construction loan at a lower rate
Consider the cost-effectiveness of the loan options. A construction-to-permanent loan might save on closing costs but could have a higher rate once converted. A construction-only loan offers flexibility to shop around for better rates but involves two closings.
Construction Loan vs. Traditional Mortgage
Construction Loan:
# Best for building new homes, major renovations, or home rehabs
# Requires higher credit scores and detailed building plans
# Higher interest rates due to risk
# Minimum down payment of 20% to 25%
# Short-term (12 to 18 months)
Traditional Mortgage:
# Ideal for purchasing new or existing homes
# Requires standard financial documentation
# Lower interest rates as the home serves as collateral
# Wide range of low or no down payment options
# Long-term (10 to 30 years)
