Can I get a new construction loan without a 20% downpayment?

Can I get a new construction loan without a 20% downpayment?
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My wife and I are currently renting and are looking for our first home. We would like to build a new home but most lenders require a down payment of 20% for a construction loan. We estimate that we would be approved for about a $300,000 loan. At 20%, we would need to put down $60,000 but only have $50,000 in savings. We would like to keep at least $15,000 in our savings for emergency. Are there any other options, or are there any construction loans available that have less than 20% down payment? Would it be wise to take from a 401k loan? I have about $56,000 in a 401k and am 32 years old. My wife doesn’t have any retirement savings. Together we have an annual income of $91,000.


First, check the plan rules for your 401k. If you can borrow from it and if you can borrow more than once in a year, here is what I would recommend:

  • Use the $50k savings and borrow the additional $10k from your 401k. 
  • Liquidate enough from your 401k to equal the $15k emergency fund so it will be available if you have an emergency before you have built up your emergency fund again. 
  • As you build up your emergency fund outside  the 401k, gradually put the money inside the 401k back into investments.
If your plan limits how often you can borrow, go ahead and borrow enough for the emergency fund and the shortfall in your downpayment and pay it back to the 401k as you build up your emergency fund.
**My ideal solution would be for you to wait another year to build until you have saved enough for the downpayment. Then keep $15k cash in your 401k as a safety net while you build up your emergency fund, as I described above.
Good luck and I hope this helps!


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