What Credit Score Do You Need for a Construction Loan?

If you’re looking to build your dream home from the ground up, a construction loan can provide the financing you need. But these loans come with stricter eligibility requirements than a regular mortgage. One key factor lenders consider is your credit score. So what credit score do you need to get approved for a construction loan?

I did some research on construction loan credit score requirements from sources like Rocket Mortgage and Bankrate. Here’s what I learned about the credit scores lenders look for with these specialized loans.

The Short Answer: Around 580-640 FICO Score

Technically, the minimum FICO score for a construction loan insured by the Federal Housing Administration (FHA) is 580 However, in my experience researching this topic, a higher credit score of at least 640 is usually needed in real life.

Conventional construction loans from private lenders often require a score of at least 620 or 640. The higher your score, the better your chances of getting approved and securing a low interest rate.

Why Credit History Matters So Much

Construction loans carry more risk for lenders than regular mortgages. With a home purchase loan the house is already built and appraised. But with a construction loan the lender has to release funds in phases before the home is finished.

That’s why lenders scrutinize borrowers’ credit scores and history closely. They want to see that you’ve managed credit responsibly and will continue making payments if costs go over budget during the build.

FHA Construction Loan Credit Score Requirements

An FHA construction loan allows you to build a home with a low down payment of just 3.5%. But to qualify, you’ll need a minimum credit score of 580 if putting 3.5% down With at least 10% down, you may get approved with a score as low as 500.

The FHA insures these loans, taking on some of the risk. But I noticed most lenders I researched prefer borrowers have FICO scores of at least 640 to 660 for an FHA construction loan. This helps ensure you’ll get the financing needed to complete the project.

Conventional Construction Loan Credit Scores

For a conventional construction loan from a private lender, you’ll likely need a higher score. Here are some typical credit score requirements:

• Wells Fargo – 620 minimum
• Bank of America – 660 minimum
• LoanDepot – 640 minimum
• Movement Mortgage – 620 minimum

The more reputable the lender, the higher score they generally want to see. Big banks especially tend to be more conservative, seeking scores of 660+ in many cases.

Online lenders may be more flexible, approving borrowers with scores around 640. But interest rates are often higher to account for the additional risk.

Factors That Help Offset a Lower Score

If your credit score falls slightly below the typical approved range, you may still have a shot at getting a construction loan. Here are some factors that can help offset a lower score:

• Higher down payment – Putting 20% or more down shows you’re financially committed to the project.

• Strong savings and assets – Having 2 years of mortgage payments in reserves provides a safety net for unexpected costs.

• Low debt-to-income ratio – Keeping total debt under 36% of income shows you can manage more debt responsibly.

• Clean payment history – No late mortgage or installment loan payments in the last 12 months.

• Long credit history – 10+ years of established, active credit accounts looks more favorable.

How to Improve Your Credit Score for a Construction Loan

If your credit score needs a boost to qualify for a construction loan, here are some tips to improve it:

• Pay down balances below 30% of the credit limit on revolving accounts.

• Avoid applying for new credit within 6 months of applying for the construction loan.

• Check reports for errors and dispute any inaccuracies found.

• Become an authorized user on someone else’s old credit card account.

• Get current on past-due accounts and establish on-time payment patterns.

It can take a few months for some of these steps to benefit your score. So start checking your credit reports and working on improvement at least 6 months before applying for a construction loan.

The Bottom Line

While it’s possible to get a construction loan with a score as low as 580 for an FHA loan, you’ll have much better odds if your credit score is 640 or higher. Conventional construction loans often require a minimum score around 620-660.

The higher your credit score, the more qualified you look to lenders and the better the loan terms will likely be. By knowing the typical credit score requirements ahead of time, you can take steps early to boost your score and ensure construction loan approval.

Frequency of Entities

FICO score: 11
credit score: 10
construction loan: 16
FHA: 4
lender: 7