Construction Loans in Minnesota

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5 Best Construction Loans in Minnesota

Key Terms

  • Construction loans are a popular financing option for real estate developers in Minnesota who want to build new properties or renovate existing ones.
  • These loans are typically short-term, ranging from 6 to 18 months, and come with higher interest rates compared to traditional mortgages.
  • To qualify for a construction loan in Minnesota, developers must have a solid business plan, a detailed budget and timeline, and a good credit score. They also need to provide collateral and a down payment of 20% or more.

Did you know that Minnesota is the 12th largest U.S. state in area? Known as the “Land of 10,000 Lakes”, many people call the state home or vacation during the summer to escape the heat of the southern states.

All of this interest in the state is causing housing prices to boom. The latest data shows that housing prices have increased by 12.9% over the past year according to the Minnesota Realtors Association. Other real estate experts are reporting that the cost of building a home in Minnesota is around $300 per square foot, inclusive of all the foundation, basement, roof, HVAC and other costs (i.e. new build vs an addition).

To finance the building of a new home, many people in Minnesota turn to a construction loan. It’s important to contact an experienced loan officer when you’re shopping for construction loans because you’ll ultimately want to work with someone who does construction loans on a daily basis.

Continue reading to learn more about the advantages and disadvantages of construction loans, along with a list of lenders offering these types of loans in Minnesota.

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Benefits of a new construction loan in Minnesota

A new construction loan can help you get the job done efficiently and affordably when you are ready to build. Here are some of the benefits of a new construction loan: 

There Are No Prepayment Penalties. Lenders often assess prepayment penalties to discourage borrowers from paying off their loans early. This can be costly for the lender to do business with, so some lenders have decided to forgo prepayment penalties for construction loans. This benefits the borrower because it means they can pay off the loan early if they choose to without penalty. This gives borrowers more flexibility and freedom than home loans when it comes to their finances.

Your Interest Payments May Be Tax-Deductible. The interest payments may be deducted as a business expense if the construction project is for a business. If the construction project is for a personal residence, the interest payments may be deducted as an itemized deduction on the taxpayer’s individual income tax return.

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5 Best Minnesota construction loan lenders

If you’re considering building or renovating a home in Minnesota, check out these construction mortgage lenders that are available to state residents.

1. Affinity Plus Federal Credit Union

Affinity Plus Federal Credit Union is a not-for-profit member-owned cooperative operating through Minnesota. If you’re looking for a credit union to finance your construction loan, they could be a good option.

We contacted Affinity Plus Federal Credit Union to learn more about their construction loan product. Here are some of the key terms worth knowing:

  • Up to 90% financing. Get started with 10% down, and finance up to 90% loan-to-value (LTV) of acquisition cost within the conforming limit of $647,200.
  • Make interest-only payments at a fixed loan rate while your home is being built.
  • Streamlined refinance at closing gets you into a conventional loan when construction is complete.
  • Most draw approvals are made in 72 hours or less.
  • Local Affinity Plus staff will work directly with the licensed builder of your choice and all parties, on your behalf, during construction.
  • Single-family property and a primary residence
  • Are being built using a third-party licensed General Contractor
  • Be completed within 12 months of the construction note signing

When you’re ready to connect with a loan officer, use our form to quickly match with construction loan programs based on your specific circumstances.

2. Wintrust Mortgage

Wintrust Mortgage is one of the top 20 bank-owned retail mortgage originators in the country that originates in excess of $4 billion in loans annually in all 50 states. 

Recently we asked Wintrust Mortgage to provide us with details on their construction loan and this is what they said:

  • One-Time Closing. Only pay the closing cost once
  • Lock in your rate upfront and avoid interest rate risk
  • FHA, VA, and Conventional options
  • 0% Down up to $822,375 (VA ONLY)
  • 3.5% Down up to FHA County Limits ($356,362-822,375) 
  • 10% Down on Second homes
  • FICO 680+
  • Loans must include building no Lot/Land Loans 
  • Maximum of 10-acres per build site
  • Stick Built and Modular Homes ONLY
  • NO log homes or metal homes (barndominium)
  • Tear Down and Rebuilds do qualify
  • No self-build or owner builders. The builder must be approved. 
  • Does Not allow ADUs (Accessory Dwelling Unit – Granny Flat/Garage Conversions/Basement)
  • Now lending in all 50 States

When you’re ready to connect with a loan officer, use our form to quickly match with construction loan programs based on your specific circumstances.

3. Peoples Bank

Peoples Bank serves parts of southern Minnesota and has been in business serving individuals and companies since 1945. The bank offers construction loans to those in Iowa looking to build a new property, including financing the purchase of land.

We reached out to People Banks in Iowa to discuss their construction loan and here is what we learned:

  • Personal construction loans offer short-term financing for the costs associated with building a new home.
  • You can also use a home construction loan to make improvements, remodels or add an addition to an existing structure.
  • Construction loan terms may vary depending on the project, but the average is one year.
  • Once the work is completed, Peoples Bank will convert your construction financing into permanent financing.
  • Interest-only payments make it affordable to build your dream home.
  • Competitive rates and flexible terms.
  • Borrow only as much as you need.
  • Interest accrues only on what you borrow.

When you’re ready to connect with a loan officer, use our form to quickly match with construction loan programs based on your specific circumstances.

4. Deerwood Bank

Deerwood Bank has over 100 years of serving the community. Started in Deerwood, Minnesota, the bank originally helped miners and settlers showing up in the state thanks to the expansion of the railroad. Fast forward for a bit and Deerwood Bank is now helping citizens with everything from checking and savings accounts to construction loans.

We wanted to know more about Deerwood Bank’s construction loan products specifically, so we reached out to get a few details.

  • Can provide you with mortgage specialists that have years of experience guiding people through the complex application process.
  • Offers a construction-to-permanent loan is used to buy land and finance building a new home.
  • When the construction is completed and inspected, the loan automatically turns into a home mortgage loan.
  • Also offers a construction loan to buy land and build a new home. Like a line of credit, you only draw what you need. Once completed, separate home financing needs to be taken out before moving in.

When you’re ready to connect with a loan officer, use our form to quickly match with construction loan programs based on your specific circumstances.

5. Northview Bank

Northview Bank has served Minnesota and Wisconsin for over 100 years and is a locally-owned bank by the Pogatchnik family. With a long history of financing the purchase of land in both Minnesota and Wisconsin, they are a natural fit for a construction loan.

We wanted to get more details about Northview Bank’s construction loan, so we contacted them to learn the following details:

  • One-time close construction loan
  • Only pay one set of closing costs and have the guarantee of interest rate protection while under construction.
  • We do this with a simple loan modification process once your home is completed.
  • Homeowner renovation projects are acceptable

When you’re ready to connect with a loan officer, use our form to quickly match with construction loan programs based on your specific circumstances.

Does a Minnesota construction loan make sense for you?

Before deciding whether to build a new home, the first thing you need to consider is the project’s cost. It would be best if you had an idea of how much it will cost to build or renovate before you get started. This includes the materials, the labor, and any permits that may be needed.

Another thing to consider is the amount of time it will take to complete the project. You need to have a timeline that you can stick to if you can meet the repayment deadline of your construction loan. 

Your final consideration is making sure that you’re working with a seasoned loan officer that understands the construction process from start to finish. Construction loans are a different beast entirely and you should make sure that you have a partner in the bank/loan officer to help you complete the project.

Looking for a construction loan in a different state?

Click on another state to find the best construction loan lenders in that state.

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Joshua Holt is a licensed mortgage loan originator (NMLS #2306824) and founder of Biglaw Investor. His mortgage expertise lies in the areas of professional mortgage loans, particularly for lawyers, doctors and other high-income professionals. Prior to Biglaw Investor, Josh practiced private equity mergers & acquisition law for one of the largest law firms in the country.

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