Finding the Best Construction Loans in Tennessee: A Local’s Guide

Tennessee is a great place to build a custom home. With its beautiful scenery, thriving cities, and low cost of living, the Volunteer State attracts many looking to construct their dream houses However, financing these projects requires finding the right construction loan This can be tricky since construction lending is complex and options vary lender-to-lender.

As locals, we want to share our insider knowledge on finding the best construction loans in TN. We’ll overview key information on construction lending benefits of local banks and provide our top recommended lenders for borrowers in Tennessee.

Before diving into specific lenders, let’s overview what construction loans are and how they work.

Construction loans are short-term loans used to finance building a new home or renovations. The loan provides funding in stages as the project progresses. This flexible financing helps borrowers who can’t qualify for a traditional mortgage until the home is complete.

Some key features of construction loans:

• Only interest payments are made during the construction phase. This keeps payments low during building.

• The construction phase usually lasts 6-12 months, sometimes longer for major projects.

• Once construction is finished, the loan converts to a permanent end mortgage. This is called a construction-to-permanent loan.

• Lenders disburse funds in multiple “draws” after inspecting progress. Draw schedules vary by lender.

• Interest rates are typically higher than conventional mortgages and require strong credit.

Construction loans carry more risk than traditional mortgages, so finding the right lender is key. Local and regional banks are often the best options.

Why Local Lenders Shine for Construction Loans

Given the complex nature of construction lending, we recommend using a local lender rather than a national bank. Here’s why:

Market Expertise

Local lenders understand the Tennessee real estate market well. They can provide guidance on factors like build costs, labor/material availability, and appreciation trends that national lenders may lack. Their expertise helps set accurate loan terms.

Flexible Requirements

Local banks may offer more flexible qualification requirements than nationwide companies. This includes higher loan-to-values, lower credit score requirements, and lower down payments for borrowers they know and trust.

Personal Service

A local construction loan officer will provide close, personalized service. They’ll walk you through the unique process, requirements, and draw schedules. This level of service can be hard to find with an 800-number lender.

Access to Decision Makers

Local banks allow direct access to underwriters and decision makers. This enables faster processing and underwriting. If any issues come up, they can be resolved quickly.

Portfolio Lending

Local lenders often keep loans in their own portfolios instead of selling them off. This alignment incentivizes them to offer the most competitive construction loan rates and terms.

Construction Expertise

Experienced local lenders have funded hundreds of projects. They understand construction timelines and costs. This expertise translates into efficient funding disbursements.

While a national lender may offer rock-bottom rates, for construction loans you want a knowledgeable local partner.

Our Top Construction Loan Lenders in Tennessee

Ready to find a construction loan in Tennessee? Here are four excellent local lenders we recommend:

1. Home Federal Bank of Tennessee

Founded in 1924 and based in Knoxville, Home Federal Bank of Tennessee offers construction loans across the state. They have expertise building custom homes in Tennessee’s varied terrain, from the mountains to the lowlands.

Some benefits of construction loans from Home Federal:

• Fixed rate loans with one closing for the construction and permanent mortgage
• 12 months of interest-only payments based on funds disbursed
• Flexible draw schedules and competitive rates
• Local underwriting provides fast turnaround

For a construction loan expert at Home Federal Bank, we recommend contacting Douglas Byrd (NMLS #1649809, (865) 691-0935).

2. FirstBank

FirstBank is a large regional bank based in Nashville with over $11 billion in assets. They offer construction loans in TN, GA, NC, VA, AL, and other states.

Some great benefits of FirstBank’s construction loans:

• Both fixed and adjustable rate loans available
• Interest rates locked before construction starts
• Experienced construction loan officers in each market
• Up to 12 months of interest-only payments during construction
• Ability to finance land purchase in the loan

To get started with FirstBank, we recommend contacting Greg Haney (NMLS #1706609, (615) 748-2743), a top construction lending officer there.

3. Wilson Bank & Trust

Wilson Bank & Trust is a locally owned community bank based in Lebanon, TN. They provide construction loans within their Middle Tennessee footprint.

Key features of Wilson Bank’s construction lending:

• Both short-term construction loans and construction-to-permanent options
• Competitive rates and down payments as low as 5%
• No title insurance required for loans under $500k
• Fast access to decision makers for exceptions and issues
• Flexible draw schedule based on builder specs

For construction loans at Wilson Bank & Trust, contact Nick Durnin (NMLS #1547465, (615) 547-3632).

4. Pinnacle Financial Partners

Pinnacle Financial Partners is a growing regional bank based in Nashville with $37 billion in assets. They offer loans, including construction mortgages, across Tennessee and other Southeastern states.

Benefits of Pinnacle’s construction lending:

• Fixed and adjustable rate mortgages available
• Interest rates locked in before construction
• Owner-occupied projects only
• Jumbo loans available up to $3 million
• Flexible draws based on inspection of progress
• Experienced construction lenders and support team

To get started with Pinnacle, we recommend contacting Tyler Cavallo (NMLS #1644508, (615) 744-3763), a top producer there.

7 Key Tips for Getting Approved

To secure financing for your Tennessee construction project, follow these best practices:

• Shop multiple lenders – Compare loan terms, rates, and requirements across a few local banks.

• Get pre-qualified – Most lenders allow pre-qualification to estimate your chances before formally applying.

• Know your budget – Have detailed construction plans and cost estimates from builders ready.

• Check your credit – aim for at least a 680 FICO score; improve your credit before applying if needed.

• Save for downpayment – Plan for 10-20% down to get the best terms and increase approval odds.

• Have funds for cost overruns – Unexpected costs often arise so have reserves.

• Bring professional help – Engage an experienced real estate agent and attorney.

Following these tips will put you in a strong position to get approved and receive the best rates.

Closing Thoughts

Building a custom home in Tennessee is a dream for many. But financing projects through construction loans requires finding the right lender. Local banks that specialize in construction lending usually offer the best combination of competitive rates, flexibility, and guidance.

We recommend speaking with multiple local lenders to find the best loan program for your specific project. Be ready with detailed budgets, plans, a downpayment, and a strong credit profile. While the construction loan process involves extra steps, the ability to build your perfect home on your own terms makes it worthwhile. Partner with an experienced local lender to make your dream a reality.