Best Construction Loan Lenders

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Contributor, Benzinga
May 13, 2022

Home expenses can feel overwhelming, but the right construction loan can help make the process feel achievable. Examine your anticipated construction loan needs before beginning the loan application process. Loan terms and downpayment amounts vary depending on the lender and intended loan use. For example, loans available for multi-unit construction can include more generous fund amounts but will likely require additional verification. Before applying for a construction loan, consider the strength of your financial information, including your credit score and debt-to-income ratio. If possible, consult a financial professional as well as construction and real estate professionals to better understand your options. A construction loan has the ability to turn your dream home into a reality. 

Quick Look: Best Construction Loan Lenders

7 Best Construction Loan Lenders

Construction loan lenders can help ease the process of building your perfect home. Think about what you are looking for in a loan and research the options that best focus on your specific needs. For example, some loans are designed for borrowers with excellent credit scores while others accept lower down payments. 

Best Overall: TD Bank

TD Bank has roots that trace back to the 1850s, expanding on a global level during the 1960s. Historically, TD Bank entered markets and addressed customer needs as they emerged. These needs ranged from new financial tools such as credit cards to funding commercial real estate developments. TD Bank merged with other financial institutions such as banks and grew into an international powerhouse that’s ranked in the top 10 largest banks in terms of branches within North America. 

The company provides both commercial and personal construction loans, evidencing extensive financial strength and a deep understanding of customer needs. The loan options work to cover both new construction and home renovations. TD Bank offers fixed and adjustable rate loans with flexible down payment options for a construction-to-permanent loan. One factor in this type of loan is that during the construction phase borrowers make interest-only payments until the home is ready to be lived in. Once the home is complete and livable, the borrower pays both interest and the principal. 

Loan terms vary from floating to fixed depending on how a borrower chooses to proceed. For example, borrowers have the option to shift a construction loan into a mortgage. A down payment of around 20% of the sales price is recommended. Like similar construction loans, payments will not be disbursed in a lump sum but in previously scheduled payments as construction progresses. The website offers no clearly stated minimum requirements for credit scores or rates. 

Before applying for a loan, consider the multiple requirements for a TD Bank construction loan that individuals should thoroughly review when proceeding into a binding agreement. The company requires information such as your level of debt, income and a signed contract that describes either the construction or purchase. Appropriate licenses will be required before loan approval. 

Best for Excellent Credit: U.S. Bank

U.S. Bank was first created during the early 1860s and has since expanded to include a wide range of services to address personal needs, wealth management, business needs and corporate and commercial interests. The company is owned by its parent company U.S. Bancorp, which is a publicly traded company.  Over the years, U.S. Bank has incorporated technology and accommodated changing customer needs while growing its influence as a financial company. 

Individuals with excellent credit scores will find that U.S. Bank provides a large selection of loan offers and mortgages. These loans are available for the short-term. A short-term construction loan typically ranges around one year. The company uses specific personal loans for construction as well as for home improvement. Research the differences between the two before entering into a loan.

One benefit that makes U.S. Bank unique in its construction loan offerings is that the company encourages potential borrowers to research competent builders and loan officers within their area. Doing so helps facilitate a personal level of communication between loan officers and potential borrowers by connecting interested individuals with loan officers familiar with the location. 

Loans are available to people with credit scores that are above 620 in general. Credit scores typically range between 300 and 850, so a score of 620 is considered on the higher side. The company gives no clearly stated rates. The website encourages interested individuals to speak with loan officers to better understand loan specifics such as terms and rates. 

Best for Fair Credit: Wells Fargo

Wells Fargo stretches back to the early 1850s when the founders created a company to assist people with their small businesses and money goals. The company now provides a wide range of services such as personal, investing, commercial banking and corporate banking. 

The website bases loan amounts in terms of fair, good, and excellent credit. Wells Fargo recommends improving your credit before entering a loan to have a better chance of achieving more favorable terms and rates. 

What makes Wells Fargo unique is that it has a team that specializes in new construction. The company has specific construction loans and uses a mobile application that boosts customer accessibility. The website offers clear avenues of communication such as a phone number where a consultant answers your call to clarify questions.

Wells Fargo also provides an alternative home improvement personal loan that uses financing such as fixed rates with monthly fixed payments. The company has unsecured loans that can extend up to 84 months with maximum APR rates around 20.99%.  

Interested borrowers have the possibility to lock in interest rates using Wells Fargo’s Builders Best Extended Rate Lock. The rates can remain steady for up to 24 months. However, borrowers must first pay an extended lock fee to obtain the service. Wells Fargo requires down payments that range around 3%, but in most situations, the down payments for construction loans are much higher. 

Best for Bad Credit: FMC Lending

FMC Lending focuses on asset-based lending instead of credit-based lending, which can prove useful for individuals with lower credit scores. The company is a direct lender that offers fast funding and a wide range of loan options without requiring an extremely high credit score.

One thing that makes the company unique is that it uses a different approach when deciding on the loan-worthy qualities in a potential borrower. FMC Lending has the option of loan pre-approval. The website has a section where interested individuals receive loan quotes online to gain easier loan access. 

The lender has a variety of real estate-based loans such as residential, commercial and land loans. When providing loans, the company examines key factors like the income-to-debt ratio. FMC Lending focuses on providing loans with flexible terms and rates and encourages potential borrowers to call and inquire for a quote. In general, the loans are more focused on interest rates and do not require a specific minimum credit score. The company gives loan options with the possibility of closing in less than seven days. Loans have the potential for terms up to 15 years, although terms between one year and seven years are common. 

Read customer loan reviews to know the company and discern its potential benefits and risks. Customer reviews allow interested individuals to better understand if the loan options will likely work for them. 

Best for Comparing Lenders: Home Construction Mortgages

The company uses recommendations from actual users to indicate which lenders to select for loans such as personal construction loans. 

Home Construction Mortgages lets potential borrowers enter specific information such as the state that they reside in to more fully understand and compare the available construction loans. The company helps interested individuals research construction loans while sharing helpful tips and information about loan amounts. 

The company guides users of its website through two common construction loans such as the construction-to-permanent option as well as the stand-alone construction option. Each option gives certain benefits and drawbacks that should be reviewed in combination with a potential borrower’s situation. 

Before applying for a loan, know the available options by researching and comparing loan providers. It’s important to look at loans using your specific financial history and credit score to more realistically comprehend potential loan terms and rates. 

Best for Low Down Payments: GO Mortgage

GO Mortgage specializes in single-close construction loans that allow the company to stand out from other construction loan lenders. A single-close construction loan describes a situation where the loan eventually shifts from a construction loan to a permanent loan once the construction is finished. These types of loans are one-time close loans and help borrowers more effectively balance construction payments. In addition, single-close construction loans save on time and paperwork by requiring just one loan that changes and grows with the construction pace and shifting borrower needs. 

The loans are often fixed rates, which creates a sense of stability as borrowers move along the lending process. It’s typical for such loans to function on 30-year timelines. The company only requires closing fees one time, and these fees are typically around 5% in general. GO Mortgage has extremely low down payment options with a 5% maximum for specific construction-related loans. The small down payment deviates from the expected norm of a 20% down payment. For a GO Mortgage single-close construction loan, it’s recommended to have a credit score above 700, but the company accepts credit scores starting at 640 in combination with a strong financial history.

GO Mortgage gives freedom to borrowers by allowing the loans to cover a variety of home types. For example, GO Mortgage lets borrowers fund conventional construction as well as modular and manufactured homes. 

Before applying for a loan, review GO Mortgage’s stipulations, including its standards for builders. To qualify, builders must have a minimum of three years of experience building residential homes and at least $1 million in annual volume. It’s important to note that construction must begin within 30 days of the closing date. This type of loan is not offered for an investment property. 

Borrowers have an improved chance of being approved for a construction loan if they have a healthier financial history and stronger credit score. 

Best for Online Accessibility: Normandy 

Normandy has directly implemented loans for over 35 years with loan flexibility. The company focuses on giving customers knowledgeable assistance, direct communication and prompt responses. 

You can pre-qualify for some loans in under five days in combination with a closing that’s 30 days or less. Offerings vary depending on the state. For example, all of Normandy’s loan programs are available in California, but none in South Dakota. Research if your intended loan is accessible within the state where you reside. Certain Normandy loans such as the self-build construction loan are not available within all states

Normandy is unique because it has a large selection of construction-specific loans that more closely cater to individual needs. For example, the company has renovation loans, owner-build loans and hiring builder loans. 

Its owner-builder construction loan provides funds up to $4 million. This loan in most situations can be used for up to 60% of the appraised value. Loans are available for individuals with excellent credit. The term for this loan generally spans 12 months, but it’s possible to obtain an extension. Normandy charges additional fees such as an application fee and underwriting fees. 

Preapproval in most cases more effectively streamlines the lending process. Loans can be preapproved when individuals receive offers in the mail. 

It’s important to note that Normandy differentiates between personal construction and commercial construction by providing dissimilar loans to separate market segments. This aspect allows terms and rates to accurately reflect the timelines and expectations for the different building processes. 

Frequently Asked Questions

Research the construction funding alternatives to understand the multiple options. Speak with both a financial professional and several real estate professionals to gain a better understanding of the building process and intended timelines. Avoid stretching your finances too tightly with a large construction loan. It’s important to have increased flexibility in case any unforeseen life events or expenses occur. 

What is a construction loan?

A construction loan allows and facilitates the process of adding value to a property. Costs vary from building materials to obtaining permits to creating the construction plans. The loans are typically short-term. Construction loans tend to function differently than other loans because the funds are not released in one lump sum. Instead, construction loan funds are distributed and scheduled to meet different milestones in the construction process.

In general, construction loans have higher interest rates than other loans because they are riskier. One reason that construction loans are considered risky is that it’s possible that a builder may be unable to complete the house during the designated construction timeline.

Two construction loan options are the stand-alone construction loan and the construction-to-permanent loan. The two loans propose similar funding but work on different timelines.

For example, the construction-to-permanent loan changes to a permanent mortgage once the construction is completed. This type of loan might prove beneficial to a borrower because borrowers mainly need to focus on paying interest during the construction phase. 

The stand-alone construction loan is short-term focused and centers around funding the planning and building of the home. This type of personal loan is mostly paid within one year depending on additional factors such as the speed and extent of construction. However, it’s likely to be more expensive than construction-to-permanent loans.

What are some construction loan alternatives?

Alternatives to construction loans can help you build your dream home. For example, FHA construction loans help you obtain your much-needed funds. The FHA stands for the Federal Housing Administration, and it’s designed to help provide both mortgage insurance and loans. The FHA construction loan is considered a loan that becomes a mortgage once the construction period is finished. However, the limited number of FHA loan lenders can make it hard to find a loan partner.

Hard money loans can also be an alternative to construction loans. Hard money loans are typically short-term and secured with real estate as collateral. These loans are usually viewed as less risky than other funding alternatives for the lender because the loan is secured with real estate. However, the loan is riskier for a borrower because defaulting on the loan could cause the borrower to lose the real estate provided as collateral. 

Construction Loan Lenders Requirements and Criteria

When applying for a construction loan, keep in mind the additional financial information and documents that you will likely need to provide. In general, credit scores above 620 are expected to receive stronger loan terms. Higher credit scores allow borrowers the opportunity to achieve better loan terms and flexible rates. 

In general, construction loans are directly given to the builder in set increments. The borrower will most likely not have direct access to the funds which differs from other types of loans. 

Things to Consider Before Getting a Construction Loan

Before applying for a construction loan, think about your available options and research building costs. When creating a budget for building, consult multiple professionals to have a better perspective. Expenses can exceed your expectations, so give yourself some room for error when thinking about the total amount needed for your construction loan. 

Consult with professionals such as builders and financial experts to have a fuller understanding of what building a home entails. It’s important to understand the process to effectively anticipate costs and project needs. Think about your personal level of risk tolerance before taking a loan.

One important step when considering a construction loan is to organize your finances. Organizing your accounts and documents should allow you to understand your financial position before deciding on a specific loan. Your financial position will indicate the type of terms and rates that are within your reach.