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Thinking about building your dream home from the ground up?
An FHA new construction loan could help you pull it off if your credit score isn’t perfect or you don’t have a huge pile of cash for a down payment.
FHA new construction loans come with their own set of rules, qualifications, and moving parts that you need to get familiar with before you start sketching floor plans.
This guide breaks down FHA new construction loans, how they work, and the requirements to qualify in 2025.
At a high level, an FHA construction loan (sometimes called a Construction-to-Permanent Loan) is a type of mortgage loan that lets you finance the construction costs of a new construction home, then automatically convert that into a permanent mortgage when the home is complete.
Instead of taking out two separate loans (one to build, and another to buy), you get one mortgage with one closing, which can save you thousands in closing costs.
A traditional FHA mortgage is designed to help you buy an existing home—something already built, inspected, and move-in ready.
An FHA new construction loan, on the other hand, is used to finance the building of a brand-new home from the ground up. It rolls your construction costs and permanent mortgage into a single loan, so you only go through one closing.
That makes it especially appealing to first-time borrowers with lower credit scores or limited savings who still want to build a home instead of buying a resale.
These loans are backed by the Federal Housing Administration, which gives mortgage lenders a little more confidence when lending to people who might not qualify for conventional construction loans.
When you apply, you’re approved for a short-term construction loan and a permanent loan all at once.
Once your home is finished and passes inspection, the loan converts into a typical FHA mortgage with regular monthly payments.
That’s why you’ll often hear this loan referred to as an FHA construction-to-permanent loan.
These are the FHA loan requirements specific to new construction loans as of 2025.
For most borrowers, the standard FHA rule applies: a 580 score qualifies you for just 3.5% down.
If your score falls between 500 and 579, you may still qualify, but you'll need to put down at least 10%, and many lenders won’t accept applications in that range.
That said, some lenders set higher minimums specifically for construction-to-permanent loans.
In those cases, a 640 score may be required instead of 580 to account for the added risk of financing a full build.
In a nutshell:
If your credit score is 580 or higher, the minimum down payment for an FHA construction loan is just 3.5% of the loan amount. That's one of the big reasons these loans appeal to first-time buyers and borrowers with limited savings.
You don’t have to come up with that money entirely on your own, either.
Funds can come from your own savings, a gift from a family member, or an approved down payment assistance program.
Compared to conventional construction loans, which typically require a large down payment of 20% or more, FHA construction loans offer a much lower barrier to entry.
For FHA new construction loans, your builder matters just as much as your lender.
You can’t hire just anyone with a toolbox.
The builder must be licensed, insured, and able to meet FHA approval standards, which means submitting paperwork to your lender before construction begins.
Most lenders will also look for at least two years of verifiable experience to ensure the builder knows how to manage a full-scale construction project.
On top of that, the builder is required to provide a new construction warranty, which helps protect you from defects or structural issues after move-in.
FHA construction loans are only available for homes you plan to live in full time. They must be your primary residence, not a vacation home or investment property.
Eligible property types include single-family homes, FHA-approved condominiums, and certain manufactured homes, as long as they meet the FHA’s structural and safety standards.
Throughout the build, the home will undergo multiple inspections at key stages of construction.
These are required to make sure your builder is following approved plans and that the home meets all federal safety guidelines.
Qualified professionals, such as ICC-certified inspectors, licensed architects, or structural engineers with experience in residential construction, must carry out the inspections.
An appraisal is an independent assessment of what your future home will be worth once it’s built.
Before you’re approved, an FHA-approved appraiser must review:
The appraiser makes sure that the loan amount is in line with the future mortgage value of the completed home.
Your debt-to-income ratio (DTI) is one of the key factors lenders use to evaluate whether you can realistically afford your loan.
It compares your total monthly debt payments to your gross monthly income, and it helps lenders assess the risk that buyers won’t be able to make their future mortgage payments.
For FHA construction loans, the standard DTI cap is about 43%.
Some mortgage lenders may allow a higher ratio if you have strong credit, significant savings, or other compensating factors.
In general, the lower your DTI, the better your chances of getting approved (and the better your shot at a competitive interest rate).
With an FHA construction-to-permanent loan, everything happens in one closing, before the build begins.
That single closing covers the land purchase, the construction budget, and your future mortgage.
It’s simpler than juggling multiple loans and can save you a significant amount in fees.
To move forward, you’ll need to provide:
And like all FHA loans, you’ll be responsible for mortgage insurance premiums (MIP), which protect the lender in case of default:
There’s a cap on how much you can borrow with an FHA construction loan, and it’s based on where you’re building.
For 2025, FHA loan limits for a single-family home range from $524,225 in lower-cost areas up to $1,209,750 in high-cost markets.
If you're building a multi-unit property, the limits are higher.
Since these numbers vary by county, the easiest way to find your maximum loan amount is to use the HUD loan limit search tool and check your location.
There are two main loan types for people building or renovating with FHA support.
This is the standard FHA construction-to-permanent loan.
It covers the full process—from buying the land to building the home to converting into a permanent mortgage once construction is complete.
There’s just one closing, which means fewer fees, fewer surprises, and a more straightforward experience.
If you're buying a home that needs repairs—not building new—the FHA 203(k) loan lets you finance both the purchase and renovation under one mortgage.
It’s available in two forms (Standard and Limited), depending on the size of the project.
But it’s not intended for new builds.
If you’re starting from scratch, you’ll want to stick with the One-Time Close option.
Let’s talk trade-offs. These loans aren’t perfect for everyone. But for the right borrower, they can be a great fit.
An FHA construction loan is especially helpful for buyers who are focused on building a primary residence and want the extra protection that comes with a federally backed loan.
You might want to choose an FHA construction loan if:
Getting approved for an FHA construction loan takes more paperwork than a traditional mortgage, but the process is straightforward if you know what to expect.
Not all lenders offer FHA construction loans, so start by using the HUD Lender List and filtering for providers in your area that handle construction-to-permanent financing.
Your builder must meet FHA guidelines. Make sure they’re licensed, insured, and have a track record of successful builds that meet FHA loan requirements.
You'll need to provide standard financial documents like W-2s, pay stubs, and bank statements, along with project-specific items like a construction contract, permits, and detailed building plans.
This confirms your maximum loan amount, helps lock in an interest rate, and gives you time to review homeowners insurance options before closing.
If an FHA loan doesn’t fit your needs, you may want to consider one of these options instead:
Backed by the Department of Veterans Affairs, this loan is available to eligible service members and veterans.
It offers 0% down and no private mortgage insurance, but requires a VA-approved builder and proof of eligibility.
Designed for homes in rural areas, USDA loans offer no down payment and flexible terms.
However, they come with income and location restrictions set by the Department of Agriculture.
These loans typically require a higher credit score and larger down payment, but they offer more flexibility with builders and property types.
Unlike most FHA loans, mortgage insurance can often be removed once enough equity is built.
An FHA new construction loan gives you a way to build the home you want, even if you don’t have perfect credit or a massive down payment.
Compared to conventional financing, it offers lower entry barriers, a one-time closing, and more flexibility for first-time buyers or anyone building on a budget.
But while the financing matters, the builder you choose is just as important.
A reliable, experienced builder who knows how to work within FHA loan requirements can make the difference between a smooth construction process and a stressful one.
If you’re ready to take the next step, Dunn & Stone Builders can help.
We’ve worked with FHA-approved lenders and homebuyers across Texas to build beautiful, long-lasting homes while making the process straightforward and transparent.
Let’s talk about what it takes to build your dream home.
No, you can’t act as your own contractor. The FHA requires that you hire a licensed, independent builder who meets their eligibility criteria. DIY projects or using friends and family don’t qualify.
Yes, but the manufactured home must meet HUD standards and be permanently installed on a fixed foundation. It also has to serve as your primary residence.
For 2025, FHA loan limits for single-family homes range from $524,225 to $1,209,750, depending on the county and local housing costs. Limits are higher for multi-unit properties.
Yes. FHA construction loans require both upfront and annual mortgage insurance premiums (MIP). These premiums protect the lender and are required for the life of the loan in most cases.
No. FHA construction loans are only available for properties you intend to use as your primary residence. They cannot be used for vacation homes or rentals.
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