Updated June 2026

Construction Loan Rates 2026: How They Work + Best Lenders Compared

Sarah Mitchell•Mortgage Analyst•12 min read

Construction loan rates run 8.25–9.50% during the build phase in 2026, then convert to a permanent mortgage at 6.72-6.75% once your home is complete. Veterans can build with $0 down via VA One-Time Close. Here's how construction loans work, one-time close vs two-close explained, and 7 top lenders ranked.

8.25%

Best build rate

6.72%

Permanent rate

Down (VA/USDA)

Compare Construction Loan Lenders →

Free comparison • One-time close + conventional options • 680+ credit

⚡ Construction Loan Quick Answer

• Best one-time close: TD Bank (8.25%, up to $2M, East Coast)
• Best low down payment: Flagstar Bank (10% down OTC, nationwide)
• Best for veterans: VA One-Time Close (0% down, 580+ credit, 8.00% build rate)
• Build rate vs permanent: ~8.25-9.50% construction → 6.72-6.75% permanent
• Key requirement: Licensed builder required — you cannot be your own contractor (most lenders)

How a Construction Loan Works: Step by Step

Find a licensed builder + finalize plans1-3 months before closing

Lenders require a licensed, insured general contractor — most won't allow owner-builder loans. You'll need complete construction plans (blueprints), a detailed cost breakdown, and a builder's contract before you can get a loan commitment. Some lenders will help connect you with approved builders.

Apply and get a "subject to" appraisal30-60 days

The lender orders an appraisal of the completed home value (a "subject to completion" appraisal based on your plans). Your loan amount is based on either the land value + construction cost or the appraised completed value — whichever is lower. Lenders typically lend 80% of the "subject to" completed value.

Close on the loan45-90 days after application

For one-time close: one closing, one set of costs (~$8,000-$15,000). Your permanent rate is locked at this closing. For two-close: first closing is for construction loan only. You pay closing costs twice. Construction can begin after closing.

Draw schedule during building6-18 months

Your lender releases funds in draws (typically 4-6 draws) as construction milestones are met. After each draw request, an inspector visits the site to verify completion. You pay interest only on funds drawn. Example: $400K loan, $300K drawn = ~$1,837/month interest-only at 7.35%.

Certificate of Occupancy → convert to permanent mortgageAfter construction

Once the builder obtains a Certificate of Occupancy (CO) from the municipality, the construction loan converts to a permanent mortgage. For OTC: automatic conversion. For two-close: you apply for a new permanent mortgage (rate based on market at that time — could be better or worse than your build rate). Your regular monthly payments begin 30-60 days after conversion.

One-Time Close vs Two-Close Construction Loan

✅ One-Time Close (OTC)

• 1 application, 1 closing, 1 set of costs
• Permanent rate locked at closing (rate certainty)
• No re-qualification after construction
• Construction-to-permanent conversion is automatic
• Less paperwork overall
• Slightly higher construction rate (+0.25-0.50%)
• Less flexibility to shop permanent mortgage later

Best if: you want simplicity and rate certainty

📋 Two-Close Construction Loan

• 2 closings, 2 sets of closing costs (+$3K-$7K)
• Permanent rate set at market when construction ends
• Must re-qualify for permanent mortgage
• More flexibility to choose permanent lender
• Can shop rates after construction is done
• Slightly lower construction rate
• Rate risk if rates rise during 12-month build

Best if: you expect rates to drop and want flexibility

Get Pre-Approved for Construction Loan →

Best Construction Loan Lenders 2026 Compared

Ranked by rate, down payment flexibility, and availability.

Lender	Build Rate	Permanent Rate	Min Down	Min Credit	Max Loan
TD Bank 🏆 Best OTC — highest loan amounts East Coast (ME to FL)	8.25%	6.72%	20%	680+	$2M
US Bank Best nationwide OTC coverage Nationwide	8.50%	6.74%	20%	700+	$1.5M
Wells Fargo Best jumbo construction loans Nationwide	8.75%	6.76%	20%	700+	$2.5M
Flagstar Bank 🏆 Best low down (10%) OTC Nationwide	8.35%	6.71%	10%	680+	$1M
First National Bank Best two-close flexibility Central/South US	8.25%	6.75%	20%	660+	$1M
VA Lenders (via lender) 🏆 Best veterans — 0% down construction Nationwide	8.00%	6.09%	0%	580+	County limit
USDA (Rural Dev) Best rural 0% down construction Rural eligible areas	8.25%	~5.75%	0%	640+	Area limit

Rates as of June 2026. Get your personalized construction loan rate →

Ready to Build Your Dream Home?

Get pre-approved for a construction loan. OTC (1 closing) or two-close. 680+ credit, 10-20% down.

Get Pre-Approved →VA Construction — 0% Down →

Conventional: 680+ credit, 10-20% down • VA: 580+ credit, 0% down

Construction Loan FAQ 2026

How do construction loans work in 2026?

A construction loan works differently from a regular mortgage. Instead of receiving the full loan amount upfront, the lender releases funds in draws — payments to your contractor at defined milestones (foundation complete, framing complete, rough-in complete, etc.). During construction, you pay interest only on the funds drawn. Example: $400K construction loan, $200K drawn at month 3 = you pay interest on $200K only. Once construction is complete (typically 9-12 months), the loan converts to a permanent mortgage and you begin regular principal+interest payments.

→ Compare construction loan lenders now

What is the difference between a one-time close and two-close construction loan?

One-Time Close (OTC): Single loan application, single closing, single set of closing costs. Construction phase converts automatically to permanent mortgage. You lock your permanent rate at closing (before construction begins). Two-Close: Two separate loans, two closings, two sets of closing costs. First closing: construction loan for build phase. Second closing: new permanent mortgage when construction ends (you reapply and qualify again). Two-close is more flexible (you can shop for permanent mortgage separately) but costs ~$3,000-$7,000 more in duplicate closing costs.

What credit score is needed for a construction loan in 2026?

2026 construction loan credit score minimums: One-Time Close conventional: 680-700+. Two-Close construction: 660+. VA One-Time Close: 580+ (through VA lenders). USDA construction: 640+. FHA construction: 580+ (limited lenders offer this). The higher credit requirement vs regular mortgages reflects the extra risk — lenders are financing a project that doesn't exist yet. Most construction loan lenders also require a clean 12-month payment history and no recent derogatory items.

Can I build a home with no money down using a construction loan?

Yes — two legitimate paths: (1) VA One-Time Close construction loan: eligible veterans can build a custom home with 0% down. The VA's full no-down-payment benefit applies to new construction. You need a VA-approved builder and a COE. Rate during construction: ~8.00%, converts to VA permanent at ~6.09%. (2) USDA Construction loan: build in a USDA-eligible rural area with 0% down. Limited lenders offer this product. Both programs require the home to meet specific standards and the builder to be licensed.

→ Check VA construction loan eligibility

How long does it take to get a construction loan?

Construction loan timeline 2026: Application to approval: 30-60 days (longer than regular mortgage due to builder vetting, plans review, and appraisal of future value). Appraisal of proposed construction ("subject to" appraisal): 2-3 weeks. Title and closing: 1-2 weeks after approval. Total: 45-90 days from application to first draw. Plan accordingly — most builders want proof of financing before breaking ground. Apply 60-90 days before your desired start date.