Top Construction Lenders in 2021


Most people cannot afford to design and build their own home or pay for significant improvements out of pocket, which is why many lenders offer construction loans – short-term loans used to finance the construction or renovation of a home. Here is the Bankrate Guide to the Top Construction Lenders in 2021.


To determine the best construction loan lenders, Bankrate ranked lenders on several criteria, including affordability (annual interest rate and fees); expediency (time of agreement and closing); and experience (including customer support).

Top construction lenders

GO Mortgage

GO Mortgage, which specializes in construction lending, is a full service mortgage lender headquartered in Brookfield, Wisconsin that boasts some of the lowest down payment requirements for this type of loan. GO Mortgage grants loans through government-supported programs, including Fannie Mae regular loans, FHA, VA and USDA loans, so the credit rating and minimum down payment (if any) and maximum loan amounts are determined by the program. Notably, the minimum credit rating for a one-off GO construction loan is 640 and you don’t have to pay interest during construction if you are using an FHA, VA, or USDA loan.

GO Mortgage also has a dedicated construction team that provides you with regular updates and oversees the construction phase, from drawing inspections to any government-required research. With this process, it usually takes about a year to complete construction and move in.

However, this lender has at least one drawback – availability: GO Mortgage only operates in 35 states and Washington DC., operated by the Sun West Mortgage Company, offers a variety of mortgages, including construction and renovation loans, in 48 states (excluding Georgia and Massachusetts) and Puerto Rico. In particular, the lender offers FHA 203 (k) loans As a refinance or purchase: you can borrow against your home’s equity to renovate your home, or you can get a one-time mortgage to finance both the purchase of the house and the cost of renovating it.

To be eligible for a 203 (k) loan, you must prove that the funds are for construction or renovation, have a credit rating of 580 or higher, and provide your lender with a list of proposed improvements.

One noteworthy advantage: The team has a 24/7 credit center that can answer questions related to home improvement and construction loans. However, anyone interested in exploring these options will need to contact the lender to find out more as there is not a lot of information on the internet.

Flagstar Bank

Flagstar Bank is a bank and lender as well as one of the largest financial institutions in the United States. Flagstar offers a variety of mortgage options, including home improvement loans and new home loans, through their branches or online.

One option, a construction loan, can be used to build up to $ 3 million in major residential buildings and up to $ 2.5 million in second homes. The bank also offers loans for one close (from construction to permanent) or two closed (only for construction) loans, with loans with one term closure combine construction financing into the same loan as a permanent mortgage and two closings entailing followed by two separate loans.

However, as with most building loan lenders, you will likely have a higher interest rate with Flagstar on the building loan itself (in other words, before it is converted into a permanent loan). According to the bank, during construction, the interest rate is 0.75 percent higher than the constant.

Construction loan or home improvement loan

A construction loan is a short-term loan designed to buy a land plot and build a house, or to pay for a major renovation of an existing house. In general, these types of loans are more difficult to obtain and often have higher interest rates.

The builder or borrower usually takes out a building loan to cover house building cost before getting a standard mortgage. The lender pays the developer in installments that follow each stage of construction. Before the completion of the project, borrowers usually pay interest and pay off the loan only after the construction is completed.

On the other hand, home improvement loans give homeowners access to funds to pay for home renovation… This financing can come in various forms, such as a personal or government-insured loan, or through home equity buybacks in your home. In general, home improvement loans are not as structured as construction loans and borrowers have more options when it comes to accessing funds.

Construction loan requirements

Construction loan lenders have different requirements, but they are usually based on the amount you are borrowing. As with other types of mortgages, your lender determines your eligibility for a construction loan by assessing your creditworthiness, income, debt-to-income ratio (DTI), and other factors:

  • Credit rating – Most lenders require a credit rating of 680 or higher, but some may work with borrowers with lower credit ratings.
  • DTI coefficient – Lenders usually calculate that the amount of your debt obligations does not exceed 45 percent of your monthly income.
  • An initial fee – Usually a down payment of 20 to 30 percent is required, although some government lending programs may require less.
  • Construction plan – Lenders usually require a detailed plan before financing the first phase of a project.
  • Repayment plan – Apart from the building loan itself, you must also be eligible for permanent mortgage financing. A construction loan covers project payments during construction and is then converted into a permanent mortgage upon completion.

Generally speaking, mortgage lenders tend to have tighter restrictions on construction loans because the asset (home) doesn’t exist yet.

How to choose the best construction lender

Construction loans can be tricky, so it is best to work with a lender who has experience with this type of mortgage. The procedures and policies differ from lender to lender, so look for one that actually works with your timing and needs.

To find best mortgage lender and get the lowest cost loan, compare multiple construction loan lenders, their rates and conditions, and compare your interactions with them. For example, if you need efficiency, pay attention to this when communicating with a loan officer. Ultimately, choosing the best lender for you depends on your unique goals, preferences and financial situation.

How to apply for a construction loan

To apply for a construction loan, you need to provide the lender with your employment history and financial information, including your income, assets and debts, as well as your contract with the architect or builder and their project plans. These plans should indicate the total estimated cost of construction so that the loan amount can be reliably established. After submitting your application, be prepared to answer any questions your lender may have and provide any additional documentation if necessary. This will help speed up the underwriting and approval process and keep things on track.

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