Construction loan criteria include a minimum credit score of 620-720, a down payment of 10-35%, development experience, adequate net worth and liquidity, and a complete project package with approved plans, a licensed contractor, and a detailed budget. The specific thresholds vary by lender type, property class, and project complexity. Banks and credit unions hold borrowers to the strictest standards, while private lenders and hard-money shops offer more flexibility in exchange for higher rates. Understanding these benchmarks before you apply saves time, prevents surprises during underwriting, and positions your project for the best available terms.
Whether you are planning a ground-up construction project or a major renovation, meeting the right criteria determines how quickly you secure funding and at what cost. This guide breaks down every qualification factor lenders examine in 2026 so you can build the strongest possible application.
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What Credit Score Do You Need for a Construction Loan?
Credit score requirements for construction loans range from 620 to 720 depending on the lender type and loan program. This is one of the first filters underwriters apply, and falling below the threshold for your chosen lender means an automatic decline regardless of how strong the rest of your application looks.
Bank and credit union construction loans typically require a personal FICO score of 680-720. These conventional lenders view construction as inherently riskier than stabilized commercial real estate, so they set the bar higher than for a standard commercial mortgage. If your score sits between 680 and 700, you may still qualify, but expect to pay 25-75 basis points more in interest.
SBA construction loans through the 504 and 7(a) programs require scores in the 650-680 range. The government guarantee reduces lender risk, which allows for slightly lower credit thresholds. However, SBA loans come with additional paperwork, longer timelines, and owner-occupancy requirements that limit their use to borrowers who will occupy at least 51% of the finished building.
Private and hard-money construction lenders accept scores as low as 620, and some asset-based lenders may go even lower if the deal fundamentals are strong. These lenders focus more on the property and project budget than on credit scores alone. The tradeoff is cost, as private construction loans carry rates of 10-14% compared to 7-9% at banks.
If your credit score falls below the minimum for your target lender, consider spending 3-6 months improving it before applying. Pay down revolving balances to below 30% utilization, resolve any disputed accounts, and avoid opening new credit lines. Even a 20-point improvement can shift you into a more favorable tier.
What Loan-to-Cost and Loan-to-Value Ratios Do Lenders Require?
Loan-to-cost (LTC) and loan-to-value (LTV) ratios are the two most important leverage metrics in construction lending, and understanding the difference between them is critical to structuring your deal correctly. LTC measures the loan amount as a percentage of total project cost, including land acquisition, hard costs, soft costs, and contingency reserves. LTV compares the loan amount to the appraised "as-completed" value of the finished project.
Most bank construction loans cap LTC at 75-80% and LTV at 70-75%. This means you need to bring 20-25% of total project cost as equity, either in cash, land value, or a combination. For example, on a $5 million construction project with an as-completed appraised value of $6.5 million, a bank might lend up to $4 million (80% LTC) as long as that amount also stays below $4.55 million (70% LTV).
Private lenders often stretch LTC to 85-90%, which is one of the primary reasons developers choose them despite higher rates. Some even offer 100% of construction costs if the borrower contributes the land free and clear with sufficient equity. If you already own the land, you can often use your property as collateral to reduce or eliminate additional cash equity requirements.
SBA 504 construction loans allow LTV up to 90%, making them one of the highest-leverage options available for owner-occupied projects. The structure combines a bank first mortgage (50%), a CDC second mortgage (40%), and a borrower down payment (10%), resulting in significantly less out-of-pocket capital than conventional programs.
Land equity plays a crucial role in meeting these ratios. If you purchased land for $500,000 and it now appraises at $750,000, most lenders will credit the full $750,000 in equity toward the project. This can reduce or eliminate additional cash equity requirements. Run the numbers through our commercial mortgage calculator to see how different equity contributions affect your payments.
How Much Development Experience Do Lenders Require?
Development experience is one of the most subjective criteria in construction lending, and it carries enormous weight. Lenders want to see that you have successfully completed projects similar in scope, scale, and property type to the one you are proposing. A borrower who has built three strip malls will not automatically qualify for a 200-unit multifamily high-rise, even if their financials are impeccable.
Bank and credit union lenders typically require 2-3 completed projects of comparable size and complexity. They want to see a track record that demonstrates your ability to manage budgets, coordinate contractors, navigate permitting, and deliver projects on time. Documentation should include project summaries with costs, timelines, contractor references, and ideally certificates of occupancy or final inspection reports.
Private and hard-money lenders are far more flexible on experience. Many will fund first-time developers as long as the borrower partners with an experienced general contractor or brings on a development consultant. Some private lenders have "first-timer" programs designed specifically for borrowers breaking into development, though these typically require more equity (25-35% vs. 15-20%) and come with additional oversight mechanisms like third-party construction management.
If you lack direct development experience, several strategies can help you qualify. First, partner with an experienced developer who can serve as a co-guarantor or managing member. Second, hire a reputable general contractor with a verifiable track record and present their resume alongside yours. Third, start with smaller projects, as building a $1 million flex-industrial building before attempting a $10 million apartment complex creates a track record. Fourth, consider taking a development course or certification to show lenders you understand the process.
What Financial Requirements Must Borrowers Meet?
Beyond credit scores and experience, lenders evaluate several financial metrics to ensure borrowers have the resources to support the project through completion and beyond. These requirements protect against cost overruns, delays, and market shifts that could jeopardize the project.
Net worth is typically required to equal or exceed the loan amount. If you are seeking a $3 million construction loan, lenders want to see at least $3 million in net worth. This does not need to be liquid, as real estate equity, business interests, and retirement accounts all count. However, lenders may discount illiquid holdings by 20-40%.
Liquidity requirements range from 10-20% of the loan amount. On that same $3 million loan, expect to show $300,000-$600,000 in cash or near-cash assets. Lenders want confirmation that you can cover interest carry, cost overruns, and operating shortfalls during construction and lease-up without relying solely on loan proceeds.
Debt service coverage ratio (DSCR) applies primarily to the exit strategy. If your construction loan will convert to permanent financing upon completion, lenders underwrite the stabilized property to a DSCR of 1.20x-1.35x. This means the projected net operating income must exceed annual debt service by 20-35%. Use our DSCR calculator to model different rent and expense scenarios against projected loan payments.
Personal guarantees are standard on most construction loans under $10 million. Full recourse guarantees make the borrower personally liable for the entire loan balance, while limited or "bad-boy" guarantees only trigger personal liability in cases of fraud, misrepresentation, or environmental contamination. Larger projects may qualify for non-recourse terms, but these are rare for construction financing.
Not sure if your financials meet the threshold? Schedule a consultation and our team will review your personal financial statement and project pro forma to identify the best lending options.
What Project Documentation Do Lenders Require?
The documentation package for a construction loan is far more extensive than for a standard commercial mortgage. Every element must be planned, budgeted, and verified before a lender will commit capital. Missing or incomplete documentation is the top reason construction loan applications stall in underwriting.
Architectural plans and engineering drawings must be completed to a level sufficient for permitting. Preliminary sketches or conceptual renderings are not enough. Lenders want stamped plans from a licensed architect showing floor plans, elevations, structural details, and site plans. Larger projects also require MEP engineering, civil engineering, and landscape architecture.
A detailed construction budget broken down by line item is essential. The budget should separate hard costs (materials, labor, equipment) from soft costs (permits, architectural fees, inspections, insurance, legal, interest carry) and include a contingency reserve of 5-10% of hard costs. Lenders will have a third-party cost consultant review this budget, so inflated or understated line items will be flagged.
A licensed general contractor with verifiable experience on similar projects must be under contract. Lenders review the GC's financial statements, bonding capacity, insurance coverage, license status, and project history. The construction contract should be a guaranteed maximum price (GMP) or fixed-price agreement rather than cost-plus, as lenders prefer the cost certainty these structures provide.
Permits and entitlements must be in hand or demonstrably obtainable. Most lenders require building permits to be issued before the first draw. Zoning confirmation, environmental clearances (Phase I and potentially Phase II reports), and any required variances should be secured early in the process.
A market study or feasibility analysis demonstrates demand for the finished product. For multifamily construction projects, this includes rent comparables, absorption rates, demographic trends, and competitive supply analysis. For commercial projects like a vet clinic or retail center, pre-leasing commitments substantially strengthen the application.
How Do Construction Loan Criteria Differ by Property Type?
Construction loan criteria are not one-size-fits-all. The property type you are building significantly influences credit standards, leverage limits, experience requirements, and documentation thresholds. Understanding these differences helps you target the right lender and set realistic expectations.
Multifamily construction (apartments, condos, student housing) enjoys the most favorable criteria because of the strong rental demand and relatively predictable income streams. LTC ratios reach 80-85% at banks and up to 90% with private lenders. Pre-leasing requirements are modest, typically 0-20% of units, and lenders accept less development experience because the asset class is well understood. Interest rates for multifamily construction range from 7-9% at banks and 9-12% with private lenders.
Industrial and warehouse construction has become increasingly attractive to lenders since 2020, driven by e-commerce growth and supply chain reshoring. LTC ratios of 75-80% are standard, with pre-leasing requirements of 30-50% for speculative projects. Build-to-suit industrial projects with signed leases in hand often qualify for the best terms available.
Retail construction faces heightened scrutiny. Lenders want to see 50-70% pre-leasing with signed letters of intent or executed leases before committing to fund. LTC ratios are conservative at 65-75%, and interest rates carry a premium of 50-100 basis points over multifamily. Anchor tenant commitments from creditworthy national or regional retailers significantly improve terms.
Office construction remains the most challenging category in the current market. Remote work trends have increased vacancy rates, making lenders cautious about speculative projects. Expect LTC caps of 60-70%, pre-leasing requirements of 50-60%, and rates 75-150 basis points above multifamily. Build-to-suit office projects with signed long-term leases are exceptions.
Hospitality construction (hotels, resorts) requires specialized lenders and the most extensive documentation. Feasibility studies from firms like STR or HVS, franchise agreements, and management contracts with experienced operators are prerequisites. LTC ratios rarely exceed 65%, and borrowers typically need 3+ completed hospitality projects to qualify.
What Are the Criteria for SBA Construction Loans?
SBA construction loans offer borrower-friendly terms but come with strict eligibility requirements. The two primary programs, SBA 504 and SBA 7(a), each serve different borrower profiles and project types.
The SBA 504 program is the more popular option for construction. It allows up to 90% LTV financing through a three-party structure: a bank provides 50% as a first mortgage, a Certified Development Company (CDC) provides 40% as a second mortgage backed by SBA, and the borrower contributes 10% equity. For new businesses or special-use properties, the equity requirement increases to 15-20%. The key restriction is owner-occupancy, as borrowers must occupy at least 51% of the finished building for existing businesses or 60% for new construction.
SBA 7(a) loans are more flexible but come with lower maximum amounts. The current cap is $5 million, compared to $5.5 million for the CDC portion of a 504 loan. SBA 7(a) construction loans are useful for smaller projects where the total cost falls under $5 million, as they can finance the entire project through a single lender rather than the three-party 504 structure.
Credit requirements for both SBA programs start at 650 FICO, though most participating lenders prefer 680+. The SBA evaluates the overall credit profile including payment history, existing obligations, and derogatory marks. Borrowers with bankruptcies, foreclosures, or federal debt defaults within the past three years face automatic disqualification.
Both programs require comprehensive construction loan documentation, including a detailed business plan, three years of tax returns, personal financial statements, a construction budget, architectural plans, a general contractor agreement, and environmental reports. Processing times run 60-120 days, so plan accordingly.
How Can You Strengthen Your Construction Loan Application?
Even if you meet the minimum criteria, strengthening your application can result in better rates, higher leverage, and faster approvals. A well-assembled application signals professionalism and reduces perceived risk.
Increase your equity contribution beyond the minimum. If a lender requires 20% equity, offering 25-30% demonstrates commitment and gives the lender a larger cushion against cost overruns. Additional equity also provides negotiating leverage for lower rates and fewer covenants.
Pre-lease or pre-sell units before applying. Nothing reduces lender anxiety like proven market demand. A multifamily project with 30% of units pre-leased or a commercial building with anchor tenants signed will receive dramatically better terms. Even non-binding letters of intent from prospective tenants add credibility.
Assemble your professional team before approaching lenders. Having a licensed architect, experienced general contractor, civil engineer, and environmental consultant already engaged shows the project is ready to move forward. Lenders fast-track applications when the team is in place and documentation is complete.
Prepare a comprehensive project package that anticipates lender questions. Include a detailed sources-and-uses statement, a month-by-month draw schedule, a construction timeline with milestones, a market analysis, and a clear exit strategy. Address potential risks proactively, such as supply chain delays, labor shortages, or interest rate volatility, along with your mitigation strategies.
Consider engaging a bridge loan to acquire land or begin site preparation while your construction loan is in process. This demonstrates momentum and can shorten the overall project timeline. Many developers use bridge financing strategically to secure sites in competitive markets.
What Are the Most Common Questions About Construction Loan Criteria?
Can land equity count toward my down payment?
Yes, most lenders accept land equity as part of your required equity contribution. If you own the land free and clear, its current appraised value counts dollar-for-dollar toward the equity requirement. If you have an existing mortgage on the land, only the equity above the outstanding balance counts. For example, if your land appraises at $1 million and you owe $300,000, you receive credit for $700,000 in equity. Some lenders cap land equity at 50-70% of the total equity requirement and require the remainder in cash, so confirm this with your lender early in the process. Learn more about using land as collateral for construction loans.
Do criteria differ for ground-up construction versus renovation?
Yes, though the differences are more about degree than kind. Ground-up construction involves more risk, including entitlement uncertainty, longer timelines, and higher cost variability, so lenders generally require more equity (20-30% vs. 15-25%), more experience (2-3 projects vs. 1-2), and more documentation. Renovation loans, sometimes structured as bridge loans with a construction component, benefit from the existing structure providing collateral value from day one. Renovation projects also have shorter timelines and more predictable budgets, reducing lender risk.
How do private lenders evaluate criteria differently from banks?
Private lenders focus primarily on the deal rather than the borrower. While banks emphasize credit scores, net worth, liquidity, and experience, private lenders prioritize the property's as-completed value, budget accuracy, the GC's track record, and the exit strategy. A private lender might fund a first-time developer with a 640 credit score if the project has a 65% LTV, a strong GC, and a clear takeout commitment. The tradeoff is cost, as private construction loans carry rates of 10-14% plus 2-4 points in origination fees, compared to 7-9% and 0.5-1.5 points at banks.
What happens if criteria requirements change during the underwriting process?
Lenders can and do adjust criteria during underwriting, particularly if market conditions shift or the appraisal comes in differently than expected. Common mid-process changes include increased equity requirements (if the appraisal is lower than projected), additional contingency reserves (if the cost consultant identifies budget gaps), and requests for additional pre-leasing. To protect against surprises, request a term sheet or commitment letter early that locks in key terms. Having agreed-upon parameters in writing gives you leverage if terms start to shift.
What is the minimum project size for a construction loan?
Most bank construction loans start at $1-2 million, with some community banks willing to go as low as $500,000. SBA construction loans can start at $250,000, making them viable for smaller owner-occupied projects. Private construction lenders typically set minimums at $500,000-$1 million.
Take the next step toward funding your construction project. Contact Clearhouse Lending to discuss your project, review your qualifications, and get matched with the right construction loan program for your needs. Our team works with banks, SBA lenders, and private capital sources to find the best fit for every borrower and every project.