Who it is for
- Borrowers building a custom primary residence
- Buyers who own their lot free and clear
- Tear-down and rebuild projects
- Anyone wanting one closing with a one-time-close loan
Typical Construction Loan Requirements requirements
| Minimum credit score | Typically 680+; best terms at 720+ |
|---|---|
| Down payment | Usually 20–25% of total project cost; land equity typically counts |
| Max DTI | Typically 43–45% |
| Reserves | Commonly 6–12 months of payments plus a contingency buffer |
| Builder approval | Licensed, insured builder with a verifiable track record; owner-builders face steep restrictions |
| Plans and permits | Approved plans, permits or permit-ready status, line-item budget, construction contract |
| Appraisal | As-completed value based on plans and specs |
| Structure | One-time close (construction-to-permanent) or two-time close (separate construction and mortgage) |
Figures are typical market ranges as of October 2026. Actual terms depend on the lender, your credit, the property and the program, and are confirmed on your Loan Estimate or term sheet.
How it works
- Decide one-time close vs two-time close: one closing and one rate lock vs flexibility to refinance into the permanent loan later.
- Get the builder approved first; lender builder-review kills more deals than borrower credit does.
- Finalize plans, permits and a line-item budget; the appraisal and the loan are built on these documents.
- Count land equity toward your down payment; a free-and-clear lot is often most of the requirement.
- Keep a contingency reserve outside the budget; cost overruns come from your pocket, not the loan.
Try the Mortgage Payment Calculator
Pros and cons
Advantages
- Build exactly the home you want
- Land equity counts toward down payment
- One-time close means one set of closing costs
- Interest-only payments during construction
Trade-offs
- Strictest documentation of any residential loan
- Builder approval is a second underwriting
- Cost overruns are the borrower’s problem
- Rate-lock strategy is tricky on 9–12 month builds
Documents you’ll need
- Standard income, asset and credit documents
- Construction contract with line-item budget
- Approved plans and specifications
- Building permits or permit applications
- Builder license, insurance and project history
- Land deed or purchase contract
- Contingency reserve verification
Construction Loan Requirements FAQ
What is the difference between one-time close and two-time close?
One-time close combines construction and permanent financing in a single closing and rate. Two-time close uses a short-term construction loan, then a separate mortgage at completion, costing two closings but allowing a fresh rate later.
How much down do I need for a construction loan?
Typically 20–25% of the total project cost. Equity in land you already own usually counts toward it.
Can I be my own builder?
Most lenders heavily restrict or prohibit owner-builder construction loans; expect to need a licensed general contractor with a track record.
How do construction draws work?
Funds release in phases as work is completed and inspected: foundation, framing, mechanicals, finishes. You typically pay interest only on the amount drawn.
What credit score do I need for a construction loan?
Usually 680 minimum, with meaningfully better terms at 720+. Construction is riskier for lenders, so credit standards run high.
What happens if construction costs run over budget?
Overruns come out of your pocket. Lenders size the loan to the contracted budget, which is why a contingency reserve outside the loan is essential.
How are interest payments handled during construction?
You typically pay interest only on the amount drawn so far, so early payments are small and grow as construction progresses. On a one-time-close loan, full principal and interest payments usually begin after the certificate of occupancy.
What happens if my builder goes out of business mid-project?
This is why lender builder-approval exists. If it happens anyway, the lender will typically require you to hire an approved replacement builder, and remaining funds stay in the draw account. Your contingency reserve covers the transition costs.
Can I get a construction loan for a major renovation instead of new build?
Yes, renovation construction loans exist for large-scale remodels, usually when costs exceed what a 203(k) or HomeStyle loan covers. The same two-sided qualification applies: you and the project both get underwritten.
How Construction Loan Requirements compare
| Construction Loan Requirements | One-Time-Close Construction Loans | Ground-Up Construction Loans | Fannie Mae HomeStyle Renovation Loans | |
|---|---|---|---|---|
| Best for | Borrowers building a custom primary residence | Buyers building a primary residence on owned or purchased land | Spec builders | Buyers purchasing a fixer-upper with conventional financing |
| Down payment | Usually 20–25% of total project cost; land equity typically counts | Typically 10-20%; VA one-time-close 0% for eligible veterans | , | From 3-5% for primary residences (per Fannie Mae guidelines) |
| Credit | Typically 680+; best terms at 720+ | , | , | , |
| Income docs | , | , | , | , |
Typical ranges, your Loan Estimate or term sheet confirms actual terms.
Coming soon: a 2-minute walkthrough from our loan team.
Related programs
One-Time-Close Construction Loans
A one-time-close (single-close) construction loan finances your lot purchase, the build, and the permanent mortgage in one transaction, one closing, one set of closing costs, and a rate locked before ground breaks..
Ground-Up Construction Loans
An investor construction loan funds land (or a land payoff) and vertical construction of a new 1–4 unit home in draws, then is repaid by sale or a permanent refinance.
Fannie Mae HomeStyle Renovation Loans
The Fannie Mae HomeStyle loan rolls your purchase (or refinance) and renovation costs into a single conventional mortgage, one loan, one payment, based on the home’s after-renovation value..