How to Get a 10% Down Construction Loan in 2023

Getting a new home built from the ground up is an exciting prospect. But paying for construction costs upfront can be a major obstacle for many prospective homeowners. This is where construction loans that only require 10% down can provide a viable path to your dream home

In this comprehensive guide, we’ll explain what 10% down construction loans are, their pros and cons, and how to find the best rates and lenders Read on for everything you need to know about minimizing cash needed upfront through low down payment construction lending

What Is a 10% Down Construction Loan?

A 10% down construction loan is a mortgage product that only requires a 10% down payment to finance building a new home It covers the land purchase, construction materials and labor, permits, closing costs and more.

This loan is ideal for borrowers who qualify for financing but lack the 20-25% down payment often required for standard construction loans. With just 10% down, you can move forward with plans to create a custom residence tailored to your needs and lifestyle.

Pros and Cons of a 10% Down Construction Loan


  • Lower cash needed upfront. Only 10% down is required at closing, compared to 20-25% on conventional construction loans. This significantly reduces the amount of cash you need on hand to start building.

  • Potentially avoid PMI. On some loans, paying 10% down allows you to avoid paying private mortgage insurance (PMI), which adds to your monthly payments.

  • Fixed interest rate. Many 10% down construction loans offer fixed rates that hold steady over the life of the loan. This provides payment stability once the home is completed.

  • Customize the home. Since the home doesn’t exist yet, you can work closely with your builder to customize it to your specifications.


  • Higher interest rate. The rate may be up to 1% higher than rates for conventional loans requiring 20-25% down.

  • Stricter approval criteria. You’ll likely need a credit score over 720 and stable income to qualify. Lenders want reassurance you can repay the loan.

  • May require PMI. Even with 10% down, some loans require PMI, creating an added monthly expense.

  • Shorter terms available. Most have maximum 15- or 20-year repayment terms, meaning higher monthly payments.

  • May require an end loan. If the construction loan doesn’t convert to a permanent mortgage, you may need to apply for a separate end loan once the home is finished.

Factors That Impact 10% Down Construction Loan Rates

As with any mortgage, several variables affect the interest rate lenders will offer on a 10% down construction loan. Key factors include:

  • Credit score: The higher your score, the better the rate lenders will likely offer. Scores of 720+ often secure the lowest rates.

  • Down payment percentage: While 10% down programs exist, paying 20% down shows the lender you’re financially stable and can mean better rate quotes.

  • Loan product: Government-backed loans like FHA, VA and USDA loans feature favorable rates but have maximum loan limits and location requirements. Conventional loans offer more flexibility but may have higher rates.

  • Loan term: Shorter terms of 15 or 20 years mean higher monthly payments but lower interest rates. Going up to a 30-year term can secure a lower rate but increases the interest paid over the life of the loan.

  • Current market rates: As the Federal Reserve raises/lowers benchmark interest rates, mortgage rates follow suit. Shopping around within a 60-day window allows you to capitalize on any dips in current market rates.

How Do 10% Down Construction Loans Work?

10% down construction loans have a similar process as conventional construction loans, with a few key differences:

  • You provide 10% down at closing. This down payment is calculated based on the total loan amount needed to cover construction costs.

  • The lender provides the rest. After the down payment, the lender finances the remaining construction costs, fees and contingency reserves.

  • Funds are released in draws. As certain milestones are met during the build, the lender releases additional loan funds to the contractor in draws.

  • Once complete, the loan converts. In most cases, the construction loan converts to a permanent end loan with fixed payments based on the as-completed appraisal. With some loans, you’ll need to apply for a separate end loan.

  • End loan terms are shorter. To reduce lender risk, expect end loan terms of 15 or 20 years. 30-year loans may also be possible with excellent credit.

Throughout the process, regular communication with the lender and providing necessary paperwork in a timely fashion is key to a smooth building experience.

5 Tips for Finding the Best 10% Down Construction Loan Lender

If you’ve decided a 10% down construction loan is right for your new home build, here are five tips for finding the best loan program and interest rate:

1. Check if your bank or credit union offers construction loans. Sometimes the easiest option is sticking with your current financial institution. But don’t assume they’ll have the most competitive rates or down payment flexibility.

2. Get quotes from both local and national lenders. Comparing quotes from a mix of lenders gives you the most choice. Local lenders may provide more tailored service while national lenders can offer low rates through economies of scale.

3. Ask about down payment assistance programs. Several state and local housing agencies offer down payment assistance in the form of grants, loans with deferred payments, or subordinate loans to cover closing costs. These can help lower out-of-pocket costs.

4. Look for lenders that offer fixed rate options. Locking in your rate once construction is complete provides certainty around future monthly payments as you repay the loan. Avoid options where rates fluctuate after the build.

5. Opt for lenders that allow owner-builder scenarios. Being an owner-builder where you act as the general contractor saves on construction costs. Not all lenders permit this, so ask upfront if you want this route.

Shopping around within a 14-21 day period helps ensure you get the most up-to-date rates and compare multiple 10% down construction loan quotes side-by-side.

10% Down Construction Loans vs. Conventional 20-25% Down Loans

How do 10% down construction loans stack up against conventional construction loans that require 20-25% down? Here’s a quick rundown of the key differences:

<table> <tr> <td><strong>Factor</strong> </td> <td><strong>10% Down Construction Loan</strong> </td> <td><strong>Conventional 20-25% Down Construction Loan</strong> </td> </tr> <tr> <td>Down Payment Required </td> <td>10% </td> <td>20-25% </td> </tr> <tr> <td>Interest Rate </td> <td>Typically 0.5-1% higher </td> <td>Typically lower </td> </tr> <tr> <td>PMI Requirement </td> <td>Sometimes, depending on lender </td> <td>Usually can avoid PMI </td> </tr> <tr> <td>End Loan Terms </td> <td>Usually 15 or 20 years </td> <td>Up to 30 years possible </td> </tr> <tr> <td>Qualifying Criteria </td> <td>Higher credit score and DTI often required </td> <td>More flexibility on credit score and DTI </td> </tr></table>

While 10% down programs make new construction more affordable upfront, you’ll often pay a bit more each month and over the loan term compared to putting 20% or more down. Crunch the numbers carefully and look at all costs, not just the down payment.

5 Steps to Getting Approved for a 10% Down Construction Loan

If you want the dream of designing and building a custom home but have limited funds for a down payment, a 10% down construction loan may be within reach. Here are five key steps to take for approval:

1. Check your credit score. Excellent credit (720+) ups approval chances and secures better rates. Pay down debts and correct errors to boost your score if needed.

2. Verify stable income. Provide recent pay stubs, W-2s, and tax returns showing reliable income. Include all income sources like bonuses, commissions, and dividends.

3. Have plans and specifications ready. Lenders want detailed plans with cost estimates from a licensed contractor before approving the loan.

4. Get pre-qualified. Most lenders allow you to get pre-qualified to see projected rates and amounts you may qualify for. This helps set expectations.

5. Be prepared to document assets. Beyond the down payment, expect to show adequate reserves like savings

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Planning to build your new dream home from scratch or renovate an existing home? A construction loan could potentially be your ideal solution!

A construction loan, often used for home construction or renovation, is a type of mortgage loan. The original loan period is short-term during the construction phase. At the end of the construction period, the loan is often converted to another mortgage loan option for longer term, with more permanent mortgage financing. These changes are based on what is best for the borrower. Name your project. We’ll help you get there!

The first step to building your dream home is deciding where to build and purchasing your building site -your vacant lot. A vacant lot loan is ideal if you want to secure a building site but arent ready to start your house construction immediately. With most vacant lots fitting the parameters of our 10% down program, we provide the low down payment and flexibility you’re looking for.

Ready to start building your new home? Get financing to build the home of your dreams. Our 5% down construction loan program allows for more room in your home construction budget. Our mortgage lenders are here to help explain the entire construction loan process. From financing your building site through the home construction phase to the permanent mortgage loan, our mortgage lenders are here to help explain the entire construction loan process.

A renovation loan is a type of mortgage loan that provides the flexibility you need to finance home renovation projects. For example, when you want to remodel your current home or renovate a home you are purchasing and are set up with the right type of renovation mortgage loan, your dream home is within reach!

Home Construction Loan Process

We work hard to help make your dream home everything you want it to be. That includes making sure you are comfortable with each step of the construction loan process. We’ll be here to guide you through:

  • Down payment options, including a 5% down option
  • The application
  • The appraisal
  • Construction loan approval & draws
  • Locking your permanent rate
  • Converting to your permanent loan
  • The benefits of local loan servicing after your final closing

All mortgage loans are subject to credit approval.

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10 Down Construction Loan Options


What is the lowest down payment for a construction loan?

Often, borrowers convert these loans to long-term mortgages once the house is built. Unlike conventional construction loans, however, FHA construction loans are insured by the FHA. That means if you have a down payment of at least 3.5 percent, you could qualify for the loan with a credit score as low as 580.

Are construction loans difficult to get?

The loan may require a larger down payment (likely 20%) than a traditional mortgage (3.5% or even lower). The process of obtaining a construction loan can be more complex and time-consuming than getting a traditional mortgage.

What is the minimum FICO score for a construction loan?

Minimum FICO score for construction loan: 580-640 Technically, 580 is the minimum fico score for construction loan. However, Mushlin says that in his experience, a higher credit score of at least 640 is usually needed for the FHA construction-to-permanent loan program.

Can an FHA loan be used to build a house?

Yes, a new home can be purchased with an FHA loan. There are two programs available: You can either buy a home from a builder with a traditional FHA loan or you can use an FHA construction-to-permanent loan to finance the land, construction costs and the finished home.

What is a good down payment for a construction loan?

A typical down payment for a construction loan is 10 percent, though 20 percent is often preferable for lenders. Which bank is best for construction loans? Ten or twenty percent down payment is often required, and private lenders and regional banks are often best for construction loans due to their ability to take bigger risks and provide innovative solutions.

How much Down do you need for a construction loan?

Many lenders require a minimum of 20% down for construction loans, but Old National Bank allows you to put down as little as 10% on loans under $1 million. Old National Bank is also transparent about interest rates.

Can you get a construction loan without a down payment?

You can apply for a construction loan without making a down payment with a USDA or Veterans Affairs (VA) construction loan. The USDA construction loan is ideal if you want to build in a USDA-eligible rural area.

How much money do you need for a construction loan?

Borrowers typically need a down payment of at least 20% for a construction loan, but this can vary by lender. You should have enough income to cover payments on your current debts and the new construction loan. Lenders typically require a DTI ratio no higher than 45% for construction loans.

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