Getting approved for a no money down construction loan can be an affordable way to build your dream home from the ground up without a large down payment. With a no money down construction loan, you can get financing to cover 100% of your construction costs including the purchase of land, building materials, permitting fees, and labor.
While these loans make homebuilding more accessible, qualifying for one takes extra legwork. You’ll likely need pristine credit and a stable income. Working with an experienced lender can streamline the process. This guide covers everything you need to know about getting a no money down construction loan.
What Is a No Money Down Construction Loan?
A no money down construction loan finances 100% of the costs to build a new home. Unlike a traditional construction loan, borrowers aren’t required to make a down payment.
With a no money down construction loan
- You can buy land and cover all construction costs upfront
- 100% financing means you don’t have to tap your savings
- Loan disbursements are made in stages as builders hit milestones
- You pay interest-only payments during the build
- The loan can convert to a permanent mortgage after construction
These loans work similarly to a traditional construction loan except you won’t have to qualify for two mortgages—one for construction financing and one for your permanent home loan. Instead your lender will automatically convert the construction loan into a fixed-rate mortgage once building completes. This saves you time and money.
Pros
- 100% financing
- Only one loan application and set of closing costs
- Interest-only payments during construction
- Get your dream home customized to your needs
- Lock in low mortgage rates with construction-to-permanent loan
Cons
- Excellent credit usually required
- Extra paperwork and stringent lender requirements
- Higher rates than conventional loans
- Short repayment term if loan doesn’t convert to permanent financing
Construction Loan Requirements
While it’s possible to get a construction loan with nothing down, approval standards are stringent. At a minimum, you’ll likely need:
- Credit score: 720 or higher
- Debt-to-income ratio: 45% or lower
- Income: Steady employment and income to afford payments
- Construction plans: Detailed plans and specifications
- Licensed builder: General contractor approved by lender
Meeting these requirements shows lenders you’re a low credit risk. Be ready to document your income, expenses assets, credit history and provide extensive details about construction plans.
Getting your financial house in order ahead of time can boost your chances of approval. Pay down debts, maintain timely payments, and check your credit report for errors. Save up reserves covering at least six months’ living expenses in case construction gets delayed.
How To Get a No Money Down Construction Loan
Follow these steps when applying for a no money down construction loan:
1. Choose land to build on
If you already own land, great! If not, choose land and make an offer contingent on securing financing. Look for land zoned for residential building that will accommodate your build.
2. Create build plans
Work with an architect to create build plans and choose finishes. Your lender will want to review finalized plans before approving your loan.
3. Request preapproval
Ask potential lenders for preapproval based on your plans, income, and credit history. This shows sellers you’re serious.
4. Make an offer
Make an offer on land contingent on obtaining financing within a set timeframe, like 30 days. Don’t put down an earnest money deposit until your loan is approved.
5. Find a general contractor
Research and hire a licensed general contractor to oversee your build. Provide their credentials to your lender for approval.
6. Submit loan application
Supply documents to satisfy lender requirements, like bank statements, tax returns, credit reports, and the construction contract.
7. Get loan approval
Your lender will order appraisals, verify income and assets, and issue a loan commitment letter upon approval.
8. Close on the land
At closing, you’ll sign loan documents and the lender will disburse funds to purchase the land.
9. Start building
After closing, your contractor can break ground. The lender distributes additional funds in installments as work progresses.
10. Construction completes
Once construction finishes, the lender converts the loan to a fixed-rate permanent mortgage.
Shop lenders early and get preapproved to find the best loan for your budget. Ask potential lenders:
- What are your credit score and income requirements?
- What documents and information do you require for approval?
- How and when are draws released to the builder during construction?
- What’s the interest rate and will it change once the loan converts?
- Are there any fees or charges aside from closing costs?
- Can I lock in my interest rate for the permanent mortgage?
Where To Get a No Money Down Construction Loan
Not all lenders offer no down payment construction loans. Large national lenders like Chase and Bank of America tend to have more rigid requirements. Online lenders and credit unions may offer 100% financing, but usually only for highly qualified borrowers.
Your best bet is working with a local construction loan specialist. Local and regional banks are often more flexible than national lenders. They can walk you through every step of the construction lending process.
Below are a few top lenders known for no down payment construction loans:
Axos Bank
Axos Bank offers construction loans with no down payment directly through their lending team. They have an online loan application and helpful tools that let you calculate costs and payments. Axos also provides fixed-rate permanent financing once your home is move-in ready.
Loan amounts: Up to $5 million
Credit requirements: 700 minimum credit score
Rate lock: Lock in your rate up to 360 days
Click here to learn more about Axos Bank construction loans
NBKC Bank
NBKC issues construction loans with no down payment or PMI for well-qualified borrowers. Their loan experts have experience with custom homes and major renovation projects. NBKC also offers low closing costs and discounted rates when you autopay from an NBKC account.
Loan amounts: Up to $3 million
Credit requirements: 700 minimum credit score
Rate lock: 120-day rate lock option
Click here to learn more about NBKC Bank construction loans
Camden National Bank
Camden National Bank offers construction financing with no down payment through their Owner-Builder construction loan program. This loan is ideal for owner-builders who plan to act as their own general contractor during construction.
Loan amounts: Up to $500,000
Credit requirements: 680 minimum credit score
Builder requirements: Homeowners must have proven building experience
Click here to learn more about Camden National Bank construction loans
First Horizon Bank
First Horizon Bank offers One Loan construction financing that covers 100% of building costs with no down payment. This loan automatically converts to a First Horizon mortgage after the build. They have construction loan specialists available to guide you from start to finish.
Loan amounts: Up to $750,000
Credit requirements: 700 minimum credit score
Rate lock: 120-day rate lock on permanent financing
Click here to learn more about First Horizon Bank construction loans
Teachers Credit Union
Teachers Credit Union offers customizable construction loans with no down payment required. Member homebuilders work with a dedicated loan officer throughout the construction process. They also provide fixed-rate mortgages at the end of construction.
Loan amounts: Up to $750,000
Credit requirements: 700 minimum credit score
Rate lock: Lock in your fixed mortgage rate up to 270 days
Click here to learn more about Teachers Credit Union construction loans
Regional banks
Check local and regional banks in your area as many offer construction loans with no down payment options. Since loan decisions involve local underwriting, these lenders can take a more customized approach. Ask neighbors, friends, and your real estate agent for recommendations.
Alternatives To No Money Down Construction Loans
If you don’t qualify for a no money down construction loan, you may consider:
FHA construction loan: FHA construction loans only require a 3.5% down payment. You’ll need a credit score of at least 580 to qualify.
VA construction loan: For veterans and service members, VA construction loans offer 100
What is the interest rate on a construction loan?
Construction loan interest rates vary based on the term, the lender, and the borrower’s creditworthiness. Plus, they also fluctuate based on the prime lending rate. They’re usually higher than home mortgage loans, but don’t let that deter you from getting one. Credit unions will typically offer lower interest rates for construction loans.
How do construction loans work?
A construction loan is typically a short-term loan (a year or less) where the lender pays the contractor in phases once certain milestones are completed. Most construction loans cover the cost of the land, labor, materials, and permits. You may also request the loan to cover permanent fixtures, such as appliances and landscaping. The borrower usually makes interest-only payments to the lender until the construction is completed. It’s important to note that because the monthly payments for the construction will vary every month, so will the amount of the interest payments. With a construction-to-permanent loan, the lender will convert the construction loan into a mortgage once the construction and inspections are complete and the certificate of occupancy has been received. However, with construction-only loans, which are also called “standalone construction loans,” borrowers must paying the loan in full upon completion. If you’d like to learn more, you can see our guide to construction loans here.Note: Most lenders won’t issue construction loans to do-it-yourselfers. Lenders will require that developers meet certain qualifications to ensure they complete the project on time. If you’re a licensed builder by trade, however, then it may be possible to get an owner-builder construction loan.
Can I get a zero down construction loan? Do I need money down?
FAQ
What is the lowest down payment for a construction loan?
What is the lowest credit score for a construction loan?
Are construction loans difficult to get?
What is the minimum credit score for go mortgage?
Can you get a construction loan with no money down?
A sizable down payment. Your down payment will vary by loan type. You may be able to put down 5% on a conventional mortgage, but a construction loan could call for at least 20% upfront. Also, ask your lender how to get a construction loan with no money down.
Do you need a down payment for a construction loan?
Whether or not a down payment is a requirement depends on the type of loan. With VA and USDA loans, qualified borrowers can get a construction loan with 0% down. For FHA loans, the down payment could be as low as 3.5% down. Some lenders will issue traditional construction loans with 10% down.
Can you get a construction loan with 0% down?
With VA and USDA loans, qualified borrowers can get a construction loan with 0% down. For FHA loans, the down payment could be as low as 3.5% down. Some lenders will issue traditional construction loans with 10% down. Lenders who offer construction loans with zero to low down payments can be difficult to find, and they may have stricter criteria.
How much money do you need for a construction loan?
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. Down payment of at least 20%. Borrowers typically need a down payment of at least 20% for a construction loan, but this can vary by lender.