Yes, you can use an FHA loan to build a house through the FHA One-Time Close program, which rolls the land purchase, construction financing, and permanent mortgage into a single loan with a down payment as low as 3.5 percent. You sign once before construction begins, your interest rate locks, and the loan converts automatically to a standard FHA mortgage when the house is finished. No second application, no requalification.
Why a Single-Close Construction Loan Matters
Building traditionally meant two loans: a short-term construction loan to fund the build, then a separate mortgage to pay it off once the house was done. Two applications. Two sets of closing costs. A fresh credit check before the permanent loan kicked in, which meant that if your finances slipped during construction, you could end up with a finished house you couldn’t refinance into.
The FHA One-Time Close closes everything upfront.1U.S. Department of Housing and Urban Development (HUD). SFH Handbook 4000.1 Your rate locks before groundbreaking. Loan proceeds sit in escrow and pay your builder in stages as work progresses, so no lump sum changes hands. When the house is complete, the loan becomes a permanent FHA mortgage on the terms you already agreed to.
Who Qualifies
Credit Score and Down Payment
A credit score of 580 or higher qualifies you for the minimum 3.5 percent down payment. Scores between 500 and 579 still qualify, but the down payment jumps to 10 percent. Below 500, FHA will not insure the loan.1U.S. Department of Housing and Urban Development (HUD). SFH Handbook 4000.1
Down payment funds must be your own savings or come from a documented gift, typically from a family member with a formal gift letter. If you already own the lot, your land equity can count toward the 3.5 percent. The land must be titled in your name at or before closing, and the appraised value reduces the cash you need to bring.
Income and Debt-to-Income
Lenders confirm income stability with a two-year employment history, verified through W-2s and pay stubs. Self-employed borrowers should expect to provide two years of complete federal tax returns.2U.S. Department of Housing and Urban Development (HUD). Mortgagee Letter 2022-09 Employment gaps are not automatic disqualifiers, but they need documentation.
Debt-to-income generally cannot exceed 43 percent, meaning your total monthly obligations including the new mortgage stay below that share of gross monthly income. With compensating factors like strong credit or substantial cash reserves, some lenders will approve ratios up to 50 percent.
Primary Residence Only
The program is limited to homes you will live in as your primary residence. Investment properties, vacation homes, and second homes are excluded. You must move into the completed house within 60 days of the loan converting to its permanent phase. The occupancy rule is how FHA justifies the favorable terms, so it is not treated as a technicality.
What You Can Build
The program covers single-family homes. Modular homes may qualify with additional documentation. Manufactured homes on a permanent foundation are eligible under FHA’s Title I and Title II programs, provided the home meets HUD’s Model Manufactured Home Installation Standards, has adequate water and sewage service, and carries a one-year manufacturer’s warranty if new.3U.S. Department of Housing and Urban Development (HUD). Financing Manufactured Homes Title I
New construction must meet local building codes. Where local codes fall short of HUD’s baseline, federal standards control. The property must be free of foreseeable hazards including toxic contamination, radioactive materials, and erosion risk.4eCFR. Subpart S Minimum Property Standards
Luxury amenities are excluded. Swimming pools, tennis courts, and gazebos cannot be financed through an FHA construction loan.5U.S. Department of Housing and Urban Development. The Section 203(k) Loan Program Anything with a commercial use is also out. If you want a pool, plan to pay for it separately after the house is done.
You Cannot Build the House Yourself
The program requires a licensed general contractor. You cannot act as your own builder, and not every contractor will take on FHA work. The builder must hold a valid state or local license, carry general liability insurance, and have no HUD debarment on record. A debarred contractor cannot work on an FHA-insured project in any capacity.6U.S. Department of Housing and Urban Development (HUD). FHA Single Family Housing Policy Handbook – Update 15
The builder also signs a certification (HUD-92541) confirming the plans, specifications, and building site meet FHA standards. The documentation and inspection requirements are more involved than a private build, which is why some contractors decline this work. Line up a willing builder before you get deep into the application.
2026 Loan Limits
Loan limits reset every January based on local home prices. For 2026, the national floor for a single-family home is $541,287. The ceiling in high-cost markets reaches $1,249,125, which is 150 percent of the national conforming loan limit set by the Federal Housing Finance Agency.7U.S. Department of Housing and Urban Development (HUD). HUD Federal Housing Administration Announces 2026 Loan Limits Your county falls somewhere within that range.
Your total loan amount, including land, construction costs, and the upfront mortgage insurance premium, cannot exceed the limit for your county. In areas near the floor, this cap can constrain how much house you can design.
Mortgage Insurance You Will Pay
Every FHA loan carries two layers of mortgage insurance. The upfront premium in 2026 is 1.75 percent of the base loan amount. On a $400,000 loan, that adds $7,000, which most borrowers roll into the balance rather than paying at closing.
The annual premium is charged monthly and depends on your loan term, loan amount, and loan-to-value ratio. For a typical 30-year loan at or below $726,200 with more than 95 percent financing (the common scenario at 3.5 percent down), the annual rate is 0.55 percent. Larger loans above $726,200 at the same LTV pay 0.75 percent.
Unlike conventional mortgage insurance, FHA’s annual premium does not automatically cancel when you reach 20 percent equity. For loans with an original LTV above 90 percent, it stays for the life of the loan. The only exit is to refinance into a conventional mortgage once you have enough equity. Factor that ongoing cost into any comparison with other construction financing.
The Documents You Will Need
You are asking a lender to approve a house that does not exist yet, so the project has to be fully documented before closing.
- Land documentation: a sales contract for the lot if you are buying it as part of the loan, or a deed if you already own it.
- Construction contract: total cost, projected timeline, and each party’s responsibilities. Vague contracts will stall approval.
- Architectural plans: full blueprints, detailed enough for an appraiser to evaluate.
- Description of Materials (HUD-92005): a standardized form listing every major material going into the house, from insulation to roofing and flooring.8U.S. Department of Housing and Urban Development. Description of Materials – HUD-92005
- Builder certification (HUD-92541).
An FHA-approved appraiser reviews the plans and materials to determine the home’s projected value as if it were already completed. That prospective appraisal sets the ceiling on how much the lender will finance. If the number comes in low, you scale back the project or cover the gap in cash.
What Happens During Construction
You attend one closing to sign all loan documents before construction begins. Your interest rate locks. Loan proceeds go into an escrow account controlled by the lender and flow to your builder through a draw schedule.
As construction hits milestones (foundation, framing, major systems), your builder submits draw requests. An inspector visits before each draw to confirm the work matches the approved plans. Materials sitting on the site cannot be included in a draw request; the work must actually be installed. The lender typically holds back 10 percent of each draw until all work is finished and no mechanic’s liens have been placed on the property.9U.S. Department of Housing and Urban Development. Draw Request Section 203(k) – HUD-9746-A
No regular mortgage payments are typically due during construction. Interest accrues on funds disbursed to the builder, but you do not start paying principal and interest until the loan converts. This matters if you are paying rent or another mortgage while the house is being built.
Most projects take six to twelve months from groundbreaking to completion. Weather delays and material shortages are common, so build a contingency buffer into your timeline with the builder.
Moving In
When construction is complete, a final inspection verifies the home meets the approved plans, local codes, and HUD’s minimum property standards. The local jurisdiction issues a Certificate of Occupancy. The loan then transitions automatically to its permanent phase with no second application, no new credit pull, and no additional closing. You start making regular payments of principal, interest, and mortgage insurance, and you must occupy the home within 60 days.