See how financing a new build differs from traditional mortgages.

If you plan to build a brand-new home instead of buying an existing home, here’s what you need to know about financing with a construction loan.

How do construction loans work?

To understand how home construction loans work, think about the financing as a two-step process. First, you finance the construction. Most lenders require building to be complete within a year. The second phase of financing is after the home is issued a certificate of occupancy and a mortgage is used to pay off the house.
During the first step of financing—the construction loan—funds are used for purchasing the land and paying for permits, labor and materials. Your lender will pay the builder in installments as specific construction milestones are reached. The lender verifies completion of each building phase before releasing the next installment. During the construction phase, the borrower typically makes payments on interest only.

Some lenders treat the two loan steps separately, charging borrowers for administration fees and closing costs on both. When you finance your new home construction with Consumers, you can save money because we bundle the two loans as a construction to permanent loan with a single administration fee and one-time closing costs.

Downpayment for a construction loan

When getting a construction loan, you’ll need a downpayment. Depending on the type of loan you choose the down payment could be as little as 3.5% on an FHA new build loan or as high as 30%. Most lenders require a 20% downpayment.

Credit requirements for a construction loan

Credit standards are somewhat more stringent for construction loans than traditional mortgages. Lenders will generally look for a credit score of at least 680. The higher your credit score the more likely you’ll qualify as long as you have sufficient income to repay the loan. You’ll also be better positioned to qualify for a construction loan if your debt-to-income ratio is less than 45%.

Can self-employed people get a construction loan?

As long as self-employed folks meet a lender’s credit and income requirements they are eligible for constructions loans. Lenders simply require more documentation to verify income.

Turn to Consumers for your construction loan

At Consumers, we love helping our members build the home of their dreams. Our home construction loans have a one-time closing fee with an extended interest rate lock up to 12 months. The lock guarantees your rate even if interest rates rise while you’re building.
All loans subject to approval. Rates, terms, and conditions are subject to change and may vary based on credit worthiness, qualifications, and collateral conditions.