Construction loans typically require 20 to 25 percent down, though some lenders accept 15 percent
A construction loan is borrowed against a property that does not yet exist or is still being built. Because the lender cannot take a mortgage on a finished house as collateral, they require a larger down payment than a conventional mortgage would. Most construction lenders ask for 20 to 25 percent of the total project cost upfront. Some will go as low as 15 percent, and a few specialty lenders may accept 10 percent, but those come with higher interest rates and stricter requirements on your credit and income.
The down payment covers the land purchase, permits, and the first phase of construction. The lender then disburses the remaining funds in stages—called draws—as work is completed and inspected. You pay interest only on the money that has been drawn, not on the full loan amount, which is one reason construction loans cost less during the building phase than a traditional mortgage would.
The exact percentage depends on the lender, the builder's track record, your credit score, and how detailed your construction plans are. A well-established builder with a strong history will sometimes negotiate a lower down payment. A first-time builder or one with spotty references may face a requirement closer to 30 percent.
Key Takeaways
- Construction loans typically require 20 to 25 percent down, with some lenders accepting 15 percent and others requiring up to 30 percent depending on builder experience and credit profile.
- The down payment covers land, permits, and early construction costs; the lender releases remaining funds in draws as work is inspected and completed.
- You pay interest only on the money drawn during construction, not the full loan amount, which reduces borrowing costs before the house is finished.
- Your credit score, income documentation, and the builder's history all affect whether a lender will accept a lower down payment or require more.
- Construction loans typically convert to a standard mortgage once the house is complete, and you will need to refinance or pay off the construction loan at that point.
How down payment size affects your interest rate and terms
A larger down payment lowers your risk in the lender's eyes, which usually means a lower interest rate. The difference between 15 percent and 25 percent down can be 0.5 to 1 percentage point on your rate. Over a construction loan that lasts 12 to 18 months, that difference may not seem large, but it compounds when the loan converts to a permanent mortgage.
Lenders also use down payment size to decide how closely they will monitor the project. A 25 percent down payment signals that you have real money at stake, so the lender may require fewer inspections and less paperwork. A 15 percent down payment often triggers more frequent site visits, detailed cost breakdowns, and stricter proof that funds are being spent as planned.
Some lenders will not offer construction loans at all below a certain down payment threshold. If you cannot put down 20 percent, you may find your options limited to banks that specialize in construction lending or credit unions that serve your area. Conventional banks often have a 25 percent minimum.
What counts toward your down payment
Your down payment is usually calculated as a percentage of the total construction cost, not just the land value. The total cost includes the land purchase price, all labor and materials, permits and fees, architect or engineer costs, and contingency reserves (usually 5 to 10 percent of the build budget). If your land costs $100,000 and your construction budget is $300,000, your total project cost is $400,000, and a 20 percent down payment would be $80,000.
Equity you already own in the land can count toward your down payment. If you own land outright worth $100,000 and the construction budget is $300,000, some lenders will treat your land equity as part of your down payment. This is called a land equity loan or construction-to-permanent loan with land credit. The lender will appraise the land to confirm its value, and you may need to provide a recent property tax assessment or appraisal to prove what you own.
Cash gifts from family members can also count, though the lender will require a signed letter stating the money is a gift and not a loan you must repay. Funds from the sale of another property count as your own cash. Borrowed money—including home equity lines of credit, personal loans, or credit card advances—typically does not count toward your down payment.
Down payment timing and the draw schedule
You do not pay your entire down payment on day one. Instead, you pay it in stages that match the construction schedule. At closing, you typically pay 5 to 10 percent of the total project cost. As construction begins and the first phase is completed and inspected, you pay another portion. By the time the house is substantially complete, you will have paid the full down payment amount.
The lender controls the draw schedule, which is the timeline for releasing funds to the builder. A typical schedule releases money after the foundation is poured, after framing is done, after electrical and plumbing rough-in, and so on. Before each draw, a lender's inspector visits the site to confirm the work matches the budget and the construction plans. If work is behind schedule or over budget, the lender may hold a draw until the issue is resolved.
You are responsible for paying your portion of each draw on time. If you miss a payment, the lender can halt all future draws, which stops construction. This is why construction loans require proof of liquid savings or income—the lender needs to know you can cover your share of costs if the project runs longer than expected.
Credit score and income requirements that affect down payment
Lenders use your credit score and debt-to-income ratio to decide whether to accept a lower down payment. A credit score of 740 or higher and a debt-to-income ratio below 43 percent may may have access to you for a 15 percent down payment. A score below 700 or a ratio above 50 percent will likely push you toward 25 to 30 percent down.
Construction lenders also look at your liquid assets—cash in savings, money market accounts, or investments that can be converted to cash quickly. They want to see that you have reserves equal to at least three to six months of the total construction cost. If your project costs $400,000 and will take 18 months to build, the lender may want to see $60,000 to $120,000 in liquid savings beyond your down payment. This protects them if you run short of cash during construction.
Self-employed borrowers face stricter scrutiny. You will need two years of tax returns, profit-and-loss statements, and sometimes a CPA letter confirming your income. A lower down payment (15 percent or less) is harder to obtain if your income is variable or your business is newer than two years old.
Comparing down payment requirements across lender types
| Lender Type | Typical Down Payment | Credit Score Minimum | Key Requirement |
|---|---|---|---|
| Conventional bank | 25% | 720+ | Established builder or owner-builder with experience |
| Construction-specialist lender | 15–20% | 680+ | Detailed construction plans and builder references |
| Credit union | 20–25% | 700+ | Membership required; may offer better rates |
| Portfolio lender (keeps loan in-house) | 10–20% | 660+ | Higher interest rate; less stringent documentation |
| Hard money lender | 20–30% | No minimum | Property value-based; highest interest rates |
Conventional banks are the cheapest option if you may have access to, but they have the highest down payment requirement and the strictest builder standards. Construction-specialist lenders are more flexible on builder experience and may accept a lower down payment, but their rates are slightly higher. Credit unions often offer competitive rates if you are a member, though down payment requirements are similar to conventional banks.
Portfolio lenders keep loans on their own books rather than selling them, so they can afford to take more risk. They may accept a 10 to 15 percent down payment and a lower credit score, but you will pay 1 to 2 percentage points more in interest. Hard money lenders are the most expensive option and are usually used only when other lenders have declined you; they focus on the property value, not your credit or income, but rates can exceed 12 percent.
What happens after construction is complete
Once the house is finished and a final inspection is passed, your construction loan does not automatically become a mortgage. You have two options: refinance into a permanent mortgage with a different lender, or convert your construction loan into a mortgage with the same lender if they offer that product.
A construction-to-permanent loan (also called a one-time close loan) combines both phases into a single loan. You lock in the permanent mortgage rate at closing, before construction begins, which protects you from rate increases during the building phase. However, the rate is usually slightly higher than a standard mortgage rate because the lender is taking on more risk. At the end of construction, the loan simply converts to a standard 30-year mortgage without a new closing.
If you do not use a construction-to-permanent loan, you will need to refinance once the house is complete. This means applying for a new mortgage, paying closing costs again, and locking in a new rate. Refinancing gives you the option to shop for the best rate at that time, but it also means you pay two sets of closing costs and go through underwriting twice.
Frequently Asked Questions
Can I use a home equity line of credit to cover my down payment?
No. Most construction lenders do not count borrowed money toward your down payment, including home equity lines of credit, personal loans, or credit card advances. The down payment must come from your own cash, a gift with a signed letter, or equity you already own in land. The lender wants to know you have real money at risk.
What if I own the land outright—do I still need to put down 20 percent of the construction cost?
Not necessarily. If you own land worth $100,000 and your construction budget is $300,000, the lender may credit your land equity toward the down payment. You would still need to put down cash for the remaining portion, but owning the land reduces what you owe upfront. The lender will appraise the land to confirm its value.
Do I pay my entire down payment at closing?
No. You typically pay 5 to 10 percent at closing, then pay the rest in stages as construction progresses and draws are released. The lender's inspector must approve each phase of work before the next draw is released, and you pay your portion of that draw before construction continues.
What if I cannot afford a 20 percent down payment?
Construction-specialist lenders and credit unions may accept 15 percent if your credit score is 700 or higher and you have liquid savings. Portfolio lenders may go as low as 10 percent, but rates will be higher. Hard money lenders do not require a specific credit score but charge the highest rates. Compare offers from at least three lenders before deciding.
Can I lock in my mortgage rate during construction?
Yes, if you use a construction-to-permanent loan. You lock in the permanent rate at closing, before construction begins. The rate is usually 0.25 to 0.5 percentage points higher than a standard mortgage rate because the lender is taking on construction risk. If you refinance after construction is complete, you can shop for rates at that time.