For more information, see How We Make Money. Either you fall in love with a house you can't afford, you're outbid, or you can't find anything you like. One solution is to build the home you want, and a construction loan can help provide the necessary funding. To do this, you'll need a construction loan, and not all lenders offer this type of special loan product.
If you're interested in going down this path, we've done our research with our top picks of the best construction loan lenders. Guaranteed Rate is a Chicago-based company with a strong online presence and 400 branches across the country. We ranked the company as one of the top lenders because of its first-line digital experience, useful consumer tools, strong customer service and variety of credit products, including all three government loans. The guaranteed rate received fewer consumer complaints compared to most of the other lenders we looked at.
The company registered less than one complaint for every 1,000 loans originated in the consumer complaint database of the Consumer Financial Protection Office (CFPB), the agency responsible for collecting, monitoring and responding to the U.S. UU. Consumer complaints about financial services and products. See our full review of the guaranteed rate here.
Headquartered in Kansas City, Missouri, North American Savings Bank (NASB) is a full-service bank that lends in all 50 states. The North American Savings Bank has a broader mortgage menu than most, including options for veterans, first-time homebuyers, self-employed individuals, and borrowers with imperfect credit histories. This is because the bank offers VA loans, FHA loans, and mortgages to people who don't meet credit standards. The NASB also has a simplified online application process with transparent pricing to search for borrowers.
See our full review of North American Savings Bank (NASB) here. Truist Bank, now merged with Suntrust and BB%26T under its name, has an extensive presence in the U.S. Through its thousands of physical branches and its online presence. In addition to the company's extensive menu of mortgage products, an easy-to-use online application process, the transparency of information on rates and fees, and the average number of complaints compared to other lenders consulted, the brand's website is easy to navigate and has several useful resources that help with the loan application process, such as calculators, videos and examples of mortgages.
Truist offers a full menu of online or in-person bank accounts, such as checking accounts, savings accounts, money market accounts and certificates of deposit. If you are looking for a bank, want to change banks or already have a Truist account, the convenience of also having your mortgage through the same institution is an advantage. Some lending institutions also offer incentives or discounts to existing account holders. See our full review of Truist Bank here.
Construction loans versus traditional home loans have some notable differences. While most mortgages are used to finance an existing home that has already been built, a construction loan is a short-term loan used primarily to finance the costs of building a new property. There are also different types of construction loans, and since they are generally not intended to provide a permanent source of funding, many construction loans must be replaced with a more permanent traditional mortgage loan after a set period of time. Since lenders also consider construction loans to pose a greater risk, interest rates are usually higher than those of a traditional mortgage product, so it is in the best interest of the borrower to find a source of permanent funding as soon as possible.
Depending on your circumstances, there are several different types of construction loans that you can choose from. To find the best construction lender, here are some additional elements to consider:. A good first step in determining which lender to choose is to consider what you want to do, as this will affect the type of loan you'll need to look for. If you're looking to build a home from the ground up, you'll need a lender that offers construction loans.
On the other hand, if you're interested in buying a home that needs repairs, you'll need to look for a lender that offers loans for renovations instead. Choosing the wrong type of loan, even with an otherwise excellent lender, can end up costing you more in total costs. Once you've reduced your construction needs for a home, think about what type of loan is best suited to your needs. For example, if you're comfortable acting as your own general contractor and have experience building homes, you may prefer the flexibility of a homeowner-builder loan.
On the other hand, if this is your first time building a home, you may have to choose between an exclusive construction loan or a permanent construction loan. Also consider the flexibility of the construction loan. Construction loans may have different conditions, such as when they should be replaced by a permanent loan once the construction of the home has been completed, or whether they will automatically be converted into permanent funding after a certain period of time. Loans that convert automatically can save you thousands of dollars in closing costs that would otherwise have to be paid to another lender, although the subsequent interest rate may not be as competitive.
To find the best construction loan lenders, we first looked at NextAdvisor's list of the best mortgage lenders and then eliminated any lender that doesn't offer construction loans. To qualify the best mortgage lenders, we have developed a framework that uses a weighted average score of between 0 and 5, giving more importance to the criteria that we consider most important. Our list doesn't take into account key financial factors, such as mortgage rates, APRs and fees, as they depend on market conditions and your individual credit worthiness. Instead of focusing on those numbers, it's best to first determine what qualities a lender wants to have and how to find the best mortgage rates.
Then you'll be ready to find the best lender for you. See you soon in your inbox. Generally speaking, it may be more difficult to qualify for a construction loan. The approval process usually involves more documentation compared to a conventional mortgage, and this is because there are many more variables, since the loan depends on the reputation of a third party in a home that has not yet been built.
While the minimum required credit score may vary depending on the lender and the type of construction loan, a 620 rating should give you a few options to choose from. Some lenders may require an even higher credit rating depending on the characteristics of the construction loan, such as the amount of the down payment, your income, and the specifications of the house to be built. The interest rates on a construction loan will be higher than those of most other home loans. This is due to the greater risk it represents for the lender.
If a borrower doesn't pay a construction loan, the lender may not have a property that they can take over as collateral to recover their costs. Construction loans through hard money lenders are short-term loans used to support real estate investments. This type of loan generally has a higher interest rate; however, the barrier to entry is much easier than a commercial loan and funds are usually available much faster. In addition, the lender will use the property as collateral to secure the loan.
Many banks have online calculators that can give you a rough idea of your loan limits. In addition, meeting with a loan officer to get a loan prequalified or pre-approved is a good starting point. You can also analyze your options, which will vary from bank to bank, especially when it comes to construction loans and bridge financing. For construction loans, it's usually best to work with a local or regional bank or credit union.
Independent mortgage brokers who specialize in construction loans are another resource to use. Instead of taking out two separate loans to first cover the costs of building the home and then funding their purchase, buyers can use a permanent construction loan for both expenses. At first glance, the procedure for obtaining a construction loan seems to be identical to that of acquiring a mortgage. It's usually not a good idea to get a construction loan if you're renovating a current property.
Depending on the type of financing a buyer is looking for (from construction to permanent, for construction or renovation only), you may be able to further select your list of potential candidates by rejecting lenders who don't offer the right type of home construction loan. That said, borrowers have the option of getting a free quote online through the site, which is quite rare among construction loan lenders. When researching construction loan lenders, buyers may want to analyze current maximum LTV requirements and think about how their down payment will affect their own LTV ratio. Flagstar Bank stands out as a construction loan lender because of its availability across the country, allowing potential homebuyers in all states to apply for funding.
If you set a fixed mortgage rate at closing, but rates have dropped since then, you can lower your mortgage rate by paying a fee (if your loan has a variable payment option, a feature you'll probably want to have in a fixed-rate loan). In either case, more than two people (related or unrelated) may apply for a mortgage or construction loan. Some lenders offer comprehensive single-closing construction loans that allow you to buy the land, build the house and convert it into a standard mortgage, all with a single approval, a single closing and a single set of fees. Generally speaking, the best construction loan lenders will insist on hiring only licensed contractors who can demonstrate their credentials and qualifications.