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We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free – so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
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Most people can’t afford to design and build their own home or pay for major improvements out of pocket, which is why many lenders offer construction loans — shorter-term loans used to finance the building or rehabilitation of a home. Here is Bankrate’s guide to the best construction loan lenders in 2022.
To determine the best construction loan lenders, Bankrate evaluated lenders based on several criteria, including affordability (annual percentage rate and fees); expediency (approval and closing times); and experience (including customer service support).
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Construction loan lenders have varying requirements, but they are typically based on the amount you borrow. Similar to other types of mortgages, your lender determines your eligibility for a construction loan by evaluating your creditworthiness, income, debt-to-income (DTI) ratio and other factors:
Generally speaking, mortgage lenders tend to have tighter restrictions for construction loans because the asset (the home) doesn’t exist yet.
Construction loan interest rates are generally higher than the mortgage rates for standard home purchases, in part because in a build situation, there’s no home (yet) to secure the construction loan against, making it riskier for the lender to offer.
A construction loan is a short-term loan designed to help with the purchase of a plot of land and the construction of a home or pay for major renovations to an existing home.
A builder or borrower typically takes out a construction loan to cover the cost of building the house before securing a standard mortgage. The lender pays the builder in installments that follow each phase of construction. Before the completion of the project, borrowers usually only make interest payments and repay the loan once construction is complete.
Renovation loans, on the other hand, give homeowners access to funds to pay for home improvements. This funding can come in a variety of forms, such as a personal loan or a government-insured loan, or by taking out equity in your home. Overall, renovation loans aren’t as structured as construction loans, and borrowers have more options when it comes to accessing funds.
Construction loans can be complex, which is why it’s best to work with a lender who has experience with this type of mortgage. Procedures and policies differ from lender to lender, so look for one that can feasibly work with your timeline and needs.
To find the best mortgage lender and get the lowest-cost loan, compare several construction loan lenders and their rates and terms, and also compare your interactions with them. If you’re looking for responsiveness, for example, take note of this in your communications with the loan officer. Ultimately, the best lender for you depends on your unique goals, preferences and financial situation.
To apply for a construction loan, you’ll 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 plans for the project. These plans should specify the total estimated cost to build so that the loan amount can be credibly established. Once your application is submitted, be prepared to answer any questions your lender might have and provide any additional documentation as needed. This will help expedite the underwriting and approval process and keep things on track.
With additional reporting by Allison Martin
Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate is compensated in exchange for featured placement of sponsored products and services, or your clicking on links posted on this website. This compensation may impact how, where and in what order products appear. Bankrate.com does not include all companies or all available products.
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