Construction loans typically require 20 to 25 percent down, though some lenders will go as low as 10 percent or as high as 30 percent depending on your credit, the project scope, and whether you are building on land you already own.
The down payment on a construction loan works differently than on a mortgage. You are not buying an existing house — you are funding a build that has not happened yet. Lenders see this as riskier because the collateral (the finished house) does not exist when you sign. That risk is why down payments run higher than the 3 to 20 percent typical on home purchases.
The exact percentage depends on three things: your credit score, the lender's appetite for construction risk, and whether you own the land free and clear. A borrower with a 750+ credit score and owned land may get approved at 15 percent. A borrower with a 650 credit score on a speculative build may need 30 percent or be turned down entirely.
Key Takeaways
- Most construction lenders require 20 to 25 percent down, calculated on the total project cost including land, labor, and materials.
- If you own the land outright, some lenders will count its value toward your down payment, reducing the cash you need to bring.
- Construction loans disburse in stages as work completes, so your down payment sits in escrow and is drawn alongside contractor payments.
- Credit scores below 680 and projects over budget typically trigger higher down payment demands or loan denial.
- Portfolio lenders and credit unions sometimes offer 10 to 15 percent down options, though at higher interest rates than conventional lenders.
How down payment is calculated on a construction loan
The down payment is a percentage of the total project cost, not just the land price. Total project cost includes the land, the construction budget, permits, inspections, insurance, and contingency reserves. If your land is worth $100,000 and your build budget is $300,000, your total is $400,000. A 20 percent down payment is $80,000.
If you already own the land free and clear, many lenders will let you count the land's appraised value toward your down payment. So if your land appraises at $100,000 and your total project cost is $400,000, you may only need to bring $80,000 in cash (20 percent of $400,000 minus the $100,000 land equity). This is called a land credit or equity credit, and it is one of the fastest ways to reduce the cash you need upfront.
Some lenders cap how much land equity they will count. A common rule is that land cannot exceed 25 to 30 percent of the total project value. If your land is worth $150,000 and your build is only $200,000, the lender may only credit you $50,000 to $60,000 of that land value, forcing you to bring more cash.
Why construction lenders ask for more than mortgage lenders
A mortgage lender is lending against a finished, inspected house with a known market value. A construction lender is lending against a plan and a contractor's promise. If the contractor abandons the job, the house is half-built and worth far less than the loan amount. The lender's only recourse is to foreclose on an incomplete structure, finish it themselves (at cost), and sell it — a process that can take years and lose money.
The higher down payment protects the lender by ensuring you have skin in the game. If you have $80,000 down on a $400,000 project and the build goes sideways, you lose that $80,000 before the lender loses a dollar. That incentive makes you less likely to walk away or cut corners.
Down payment also shrinks the loan-to-value ratio, which is the amount borrowed divided by the finished home's projected value. A $320,000 loan on a $400,000 house is 80 percent LTV. Most construction lenders cap LTV at 80 percent, which is why the 20 percent down is standard. Lenders with higher risk tolerance may go to 85 or 90 percent LTV, but they charge higher interest rates to offset it.
Down payment ranges by lender type
| Lender Type | Typical Down Payment | Credit Score Minimum | Notes |
|---|---|---|---|
| Conventional banks | 20–25% | 700+ | Strict underwriting, fastest closing, lowest rates if you may have access to |
| Credit unions | 15–20% | 680+ | May offer better terms to members; less standardized requirements |
| Portfolio lenders | 10–20% | 650+ | Hold loans in-house, more flexible; higher rates; slower to close |
| Spec builders' lenders | 5–15% | Varies | For builders constructing homes for resale; not for owner-builders |
Conventional banks are the most common source for owner-builder construction loans. They require 20 to 25 percent down and a credit score of 700 or higher. They close faster (30 to 45 days) and offer the lowest interest rates, but they have the strictest rules about contractor experience, project scope, and budget overruns.
Credit unions sometimes undercut conventional banks by 1 to 2 percent on down payment, especially if you have been a member for years. They move slower and have less standardized processes, but they may work with you if your credit is between 680 and 700 or if your project is unusual.
Portfolio lenders hold loans on their own books instead of selling them to investors, which gives them room to bend rules. Some will do 10 to 15 percent down for borrowers with credit scores as low as 650. The tradeoff is a higher interest rate (often 1 to 3 percent above conventional) and a longer closing timeline (60 to 90 days).
What happens to your down payment during construction
Your down payment does not sit in your checking account. It goes into an escrow account held by a title company or the lender. As construction progresses, the lender releases funds in stages called draws or disbursements. A typical schedule has draws at foundation, framing, rough-in (electrical and plumbing), drywall, and final completion.
Your down payment is drawn first, alongside the lender's money, to pay the contractor for the first stage of work. If the project costs $400,000 and you put $80,000 down, the lender funds $320,000. The first draw might be $60,000 total — your $12,000 plus the lender's $48,000 — to pay for site prep and foundation. Your down payment is spent proportionally across all draws, not held back until the end.
If the project runs over budget, your down payment does not automatically increase. Instead, you have to bring more cash or the lender has to approve a change order that increases the loan amount. If you cannot do either, construction stops until the budget is resolved.
Factors that increase down payment requirements
A credit score below 680 almost always triggers a higher down payment. Lenders see scores in the 650 to 680 range as higher risk and may demand 25 to 30 percent down instead of 20 percent. Scores below 650 make conventional lending very difficult; you may be limited to portfolio lenders at 15 to 20 percent down and significantly higher rates.
A history of late payments, foreclosure, or bankruptcy within the last three to five years will also push down payment up. Lenders use these as signals that you may struggle to manage the loan, so they require more of your own money at risk.
Projects in rural areas, on difficult terrain, or with inexperienced contractors face higher down payments because the lender sees more execution risk. A custom build in an established neighborhood with a licensed, bonded contractor may get approved at 20 percent. The same budget in a remote area or with a first-time builder may require 25 to 30 percent.
If your construction budget is vague or your contractor's bid is significantly lower than comparable projects, lenders assume the budget will overrun and may demand 25 to 30 percent down as a cushion. Detailed plans, multiple contractor bids, and a contingency reserve of 10 to 15 percent of the build budget help convince lenders that your numbers are realistic.
Frequently Asked Questions
Can I borrow the down payment from someone else?
Most lenders require that your down payment come from your own funds, savings, or the sale of another property. Borrowed money — even from family — usually disqualifies you because it increases your debt-to-income ratio and signals you do not have reserves if something goes wrong. Some lenders allow a gift from a family member if you document it as a gift, not a loan, and the giver signs a letter stating they do not expect repayment.
What if I own the land but it has a mortgage on it?
You cannot use land equity as a down payment credit if the land has a lien on it. The construction lender needs a first lien position on the property. You would need to pay off the existing mortgage first, which means bringing that cash to closing. Some lenders will allow you to refinance the land mortgage into the construction loan, but this increases your total borrowing and may require a higher down payment percentage.
Do I get my down payment back if the project is cancelled?
No. Once the down payment is drawn and paid to the contractor, it is spent. If you cancel mid-project, you lose the down payment and any funds already disbursed. The lender may also pursue you for the remaining loan balance if the house sells for less than what is owed. This is why construction loans are riskier than mortgages — your down payment is at risk from day one.
Can I use a home equity line of credit to fund the down payment?
Yes, if you own another property with equity. A HELOC is treated as your own funds by most lenders. However, the HELOC balance counts toward your total debt, which affects your debt-to-income ratio and may reduce the loan amount the construction lender will approve. Run the numbers with both lenders before committing.
What if my down payment is less than 20 percent?
You will need a lender willing to go below 80 percent LTV, which usually means a credit union or portfolio lender, higher interest rates, and a longer closing timeline. Some lenders require mortgage insurance on construction loans with down payments below 20 percent, though this is less common than on mortgages. Ask the lender upfront whether insurance is required and what it costs.