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Fred joined Dunn & Stone in July 2010 as purchasing manager. Purchased the company in 2019. Since 2010 has been the primary client contact for plan design and translating buyer goals into buildable plans. Over the years he has guided hundreds of Houston-area buyers through construction financing options, including FHA one-time close loans. Dunn & Stone has built over 1,000 homes since 1999.
Thinking about building your dream home from the ground up? An FHA new construction loan can make it possible if your credit score is not perfect or you do not have a large cash down payment. These loans come with specific rules for borrowers, builders, and the property. This guide covers how FHA construction loans work in 2026, the full requirements, Texas considerations, and what you need to know before choosing one.
An FHA construction loan, often called a construction-to-permanent or one-time close loan, finances the full cost of building a new home and then converts into a standard FHA mortgage once the house is complete. You close once instead of taking separate construction and permanent loans. That single closing saves time and thousands in repeated fees.
A traditional FHA mortgage buys an existing home that is already finished and inspected. An FHA new construction loan covers land (if needed), materials, labor, and the permanent financing under one mortgage. It is designed for primary residences only.
FHA construction loans are insured by the Federal Housing Administration. The insurance gives lenders more confidence with borrowers who may not meet conventional standards. You get approved for the construction phase and the permanent mortgage at the same time.
During construction the lender releases funds in draws as work reaches milestones. You typically make interest-only payments on the amount drawn. A contingency reserve (often 5% or more of construction costs) is held to cover overruns.
In the projects we manage, that reserve has repeatedly proven essential when material costs shift or inspections add unexpected work. When the home receives its certificate of occupancy and passes final inspection, the loan converts to a regular FHA mortgage with principal and interest payments. No second closing or re-qualification is required.
Most FHA construction loans used for new builds are one-time close products. The FHA 203(k) program is for renovations of existing homes and does not finance pure new construction.
In our experience guiding Texas buyers, the one-time close construction loans structure is the cleanest path for most custom home projects. It eliminates the risk of needing to re-qualify after the build and keeps paperwork to a single closing. You can learn more about how that process fits into the overall process of building a custom home.
A score of 580 or higher qualifies for the lowest down payment of 3.5%. Scores between 500 and 579 may still work with a 10% down payment, but most construction lenders set higher floors because of the added risk of a full build. Many one-time close lenders look for 620 or above.
The minimum is 3.5% of the total acquisition cost when credit is 580 or higher. Gift funds from family members are allowed under FHA rules. If you already own the land free and clear, the equity can often count toward the down payment and reduce the cash you need at closing. This is especially useful for build on your lot projects.
You cannot act as your own general contractor. The builder must be licensed, insured, and approved by the lender before closing. Most lenders require a track record of completed projects, a fixed-price contract, detailed plans and specs, and the ability to provide the required FHA forms, including HUD-92541 (Builder’s Certification of Plans, Specifications, and Site) and HUD-92544 (Warranty of Completion of Construction). These requirements are outlined in the HUD Single Family Housing Policy Handbook 4000.1.
Experience with local permitting and inspections matters. In Texas, most counties turn permits around in two to three weeks. Harris County has tighter rules around fill dirt and flood maps. Montgomery County is moving in a similar direction. Choosing a builder who already works smoothly in these counties reduces delays that can affect draw schedules and the overall construction window.
FHA also requires a new construction warranty. Our in-house coverage includes bumper-to-bumper protection in year one, mechanical systems in year two, and structural coverage through year ten, backed by a third-party structural warranty for added protection. You can read more about what that looks like in our new construction home warranty overview.
The home must be your primary residence. Eligible types include site-built single-family homes (one to four units), modular homes, and certain manufactured homes on permanent foundations. The property must meet FHA Minimum Property Standards for safety, structural integrity, and livability. Multiple inspections occur during construction, typically covering footing, framing, and final stages, performed by local authorities or approved third parties.
Flood zone rules apply. If any portion of the dwelling sits in a special flood hazard area, additional elevation documentation or a Letter of Map Amendment may be required.
An FHA-approved appraiser values the finished home based on plans and specs. The appraisal supports the loan amount and confirms the property will meet standards once complete. Appraisals for proposed construction usually remain valid for 12 months.
Most lenders target a DTI of 43% or lower. Automated underwriting can approve higher ratios when compensating factors exist, such as strong reserves, stable income, or significant equity. Construction loans receive closer scrutiny because you may carry existing housing costs during the build.
Clear title is required. The one-time close structure combines land (if purchased), construction funding, and the permanent mortgage into a single transaction. During the build phase, the lender manages a draw schedule tied to completed work. Contingency funds protect against cost overruns. Construction typically must finish within about 11–12 months under most FHA one-time close products.
FHA sets county-specific limits each year. For 2026 the national floor for a one-unit property is $541,287 and the high-cost ceiling is $1,249,125. Multi-unit limits are higher. Check the official HUD loan limit lookup tool for your exact county, because some areas fall between the floor and ceiling. The total loan amount, including land, construction, and any financed MIP, must stay within the limit for your location.
This is the standard product for new builds. It covers land purchase (or uses existing land equity), construction costs, and converts automatically to a 30-year FHA mortgage at completion. One application, one closing, interest-only payments during the build phase. We walk Texas buyers through this structure regularly as part of the overall financing conversation.
The 203(k) program finances purchase plus renovation of an existing home. It is not designed for ground-up new construction. Buyers looking to tear down and rebuild usually need a true construction-to-permanent loan instead.
An FHA construction loan fits best when you are building a primary residence, need a lower down payment, or your credit sits below conventional construction thresholds. It also suits buyers who want the security of FHA insurance and a single-close process. If you already own suitable land, the equity can further lower cash needed at closing.
Many of the buyers we work with who choose FHA financing also explore semi-custom homes as a way to control costs while still getting a floor plan tailored to their lot and lifestyle.
Buyers with strong credit, larger down payments, or plans for a second home or investment property usually find conventional or other government programs more flexible. If you are still weighing financing options overall, start with our guide on how to get a loan to build a house. Some buyers also explore available incentives that can further reduce upfront costs.
Texas buyers face a few practical differences. Most counties process permits in two to three weeks and are generally straightforward. Harris County has become stricter on flood maps and the ability to bring in fill dirt to raise a home above Base Flood Elevation. Montgomery County is trending in the same direction. Grimes County remains easier to work with and is seeing more activity.
These local rules affect site eligibility, foundation design, and the construction timeline that must fit inside the FHA draw window. Working with a builder who already navigates these counties regularly helps keep inspections and draws on schedule. If you are still searching for land, our buying land in Texas guide walks through the key steps.
Not every mortgage lender offers FHA construction loans. Start with the HUD lender list and filter for those that handle construction-to-permanent financing in Texas.
Confirm your chosen builder can meet lender and FHA standards. Licensed status, insurance, experience, and willingness to provide the required certification forms are non-negotiable.
Expect to supply credit reports, income and employment verification, tax returns, detailed building plans and specifications, a fixed-price construction contract, and proof of down payment funds or land equity.
Preapproval locks in your maximum loan amount based on current income, credit, and the projected finished value. Once the builder and plans are approved, the file moves to clear-to-close.
During construction the lender manages draws against the budget. A contingency reserve protects against overruns. Final conversion happens after the certificate of occupancy and any required inspections.
Eligible veterans and service members can access zero-down VA construction loans with no monthly mortgage insurance. Builder approval and primary-residence rules still apply.
Available in eligible rural areas with income limits. Zero-down options exist for qualifying households.
Higher credit and down payment requirements (often 20%+) but greater flexibility on property type, loan size, and lender choice. Many conventional one-time close products are available in Texas.
An FHA new construction loan removes two common barriers: high down payments and stricter credit thresholds. Pairing it with an experienced local builder who understands Texas permitting, inspections, and one-time close processes keeps the project on schedule and within the rules.
If you are ready to explore whether an FHA construction-to-permanent loan fits your plans, schedule a free consultation with our team. We can walk through current lender options, builder qualification steps, and how the one-time close structure works for custom homes in the Houston area. You can also use our cost to build a house calculator to start estimating total project costs.
No. The FHA requires a licensed, independent general contractor approved by the lender. Owner-builder, DIY, or family-member builds do not qualify under standard FHA construction-to-permanent rules.
Yes, provided the home is new, meets HUD standards, is installed on a permanent foundation, and will serve as your primary residence. Single-wide mobile homes are typically excluded.
For 2026 the one-unit floor is $541,287 and the high-cost ceiling is $1,249,125. Limits vary by county. Use the official HUD loan limit lookup tool for the exact maximum in your location.
Yes. Borrowers pay an upfront mortgage insurance premium of 1.75% of the loan amount (often financed) plus an annual MIP that is paid monthly. The annual premium usually continues for the life of the loan when the down payment is less than 10%. These premiums are set by FHA and detailed in official Mortgagee Letters and the HUD Single Family Housing Policy Handbook.
No. FHA construction loans are restricted to primary residences only. Vacation homes and investment properties require other financing.
Yes. If you already own the lot free and clear, the appraised equity can often satisfy part or all of the 3.5% down payment requirement on an FHA one-time close loan.
Most products require the home to be finished within about 11–12 months. Actual build times vary with size, features, weather, and local permitting. Our average construction phase runs about 210 days once work starts. For a deeper look at typical schedules and what affects them, see how long it takes to build a house.
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