Yes, you can use an FHA loan to build a house. The product is called the FHA One-Time Close loan, and it rolls the land purchase, the construction financing, and the permanent mortgage into a single transaction. You close once, before ground breaks, with as little as 3.5% down if your credit score is 580 or higher.1HUD.gov. Mortgagee Letter 2019-08
How the One-Time Close Loan Works
A traditional new-construction project uses two loans: a short-term construction loan, then a separate permanent mortgage after the house is finished. That means qualifying twice, paying two sets of closing costs, and taking whatever interest rate is available on the second loan. The FHA One-Time Close collapses both into one loan with one closing and one locked rate.
At closing, the funds go to buy the land if you don’t already own it. The rest sits in escrow. As each phase of construction is verified complete, the lender releases money to the builder in installments known as draws. Building typically takes six to twelve months, and during that stretch you pay only interest on the amount that has been disbursed so far, not full mortgage payments.
If you already own the lot, your equity in the land can count toward the 3.5% down payment. When the land is worth enough on its own, you may not need to bring any additional cash to satisfy the down payment requirement, though you’ll still owe closing costs.
Once the home is finished and the local building authority issues a certificate of occupancy, the loan automatically converts into a standard 15- or 30-year fixed-rate mortgage. There is no second closing and no requalification.
Who Qualifies
Your credit score sets your down payment. At 580 or above, you qualify for maximum financing at 96.5% of value, so 3.5% down. Between 500 and 579, you still qualify but must put down at least 10%.2FDIC. 203(b) Mortgage Insurance Program Guide
Debt-to-income ratio matters too. The standard back-end DTI cap is 43%, but FHA allows lenders to approve ratios up to 50% when the file shows compensating factors such as significant cash reserves, a minimal jump from your current housing payment, or a history of making similar-sized payments on time.
You’ll need a stable two-year employment history, documented with pay stubs, W-2s, and tax returns. Self-employed borrowers must supply two years of complete federal tax returns plus a year-to-date profit-and-loss statement.3HUD.gov. Mortgagee Letter 2022-09
What You Can Build
The house has to be your primary residence. FHA will not insure construction of a vacation home or an investment property, and at least one borrower must move in within 60 days of signing and intend to live there for at least a year.4HUD.gov. FHA Single Family Housing Policy Handbook
Beyond a standard single-family home, the program also covers:
- Multi-unit properties of two to four units, as long as you live in one of them. Duplexes, triplexes, and fourplexes each carry higher loan limits than single-family homes.
- Manufactured homes built to the federal Manufactured Home Construction and Safety Standards (the HUD Code) and displaying a red certification label on the exterior of each section.5HUD.gov. Manufactured Housing Homeowner Resources
Builder and Property Standards
Your builder must be a licensed general contractor. You cannot act as your own GC unless you personally hold a general contractor’s license.1HUD.gov. Mortgagee Letter 2019-08 The lender confirms that the builder carries general liability and workers’ compensation coverage and has no history of federal sanctions or debarment.
The lot has to meet geographic and environmental requirements, including restrictions on certain high-risk flood zones and areas with soil instability. The finished home must comply with HUD Minimum Property Standards, which set baseline requirements for structural soundness, safety systems, and livability.6eCFR. 24 CFR Part 200 Subpart S – Minimum Property Standards
The Builder’s Warranty
Before the loan closes, the builder signs a Warranty of Completion of Construction (HUD Form 92544). It carries two obligations. First, the builder guarantees the house was built in substantial conformity with the approved plans and specifications; you must report any nonconformity in writing within one year of title transfer or initial occupancy, whichever comes first. Second, the builder warrants the property against defects in equipment, materials, or workmanship for one year and must repair covered defects at their own expense, restoring any work damaged during the repair.7HUD.gov. Warranty of Completion of Construction
Mortgage Insurance You’ll Pay
Every FHA loan carries mortgage insurance premiums, and construction loans are no exception. There are two charges:
- Upfront MIP of 1.75% of the base loan amount, usually rolled into the loan balance. On a $300,000 loan, that’s $5,250 added to what you owe.
- Annual MIP, split into monthly installments added to your payment. For a 30-year loan with a base amount at or below $726,200, the rate is 0.55% of the outstanding balance. Larger loan amounts carry 0.75%.
On loans longer than 15 years with an original loan-to-value above 90%, which describes most FHA construction loans taken with the minimum down payment, annual MIP lasts the life of the loan. To drop it, you would need to refinance into a conventional mortgage once you have enough equity.
2026 Loan Limits
FHA sets a maximum loan amount that varies by county based on local home prices. For 2026, single-family limits run from a $541,287 floor in low-cost areas to a $1,249,125 ceiling in high-cost areas.8HUD.gov. HUD’s Federal Housing Administration Announces 2026 Loan Limits Most counties sit somewhere in between; you can look up the exact figure for your county on HUD’s website.
Multi-unit limits are higher. In low-cost areas, they are $693,050 for a duplex, $837,700 for a triplex, and $1,041,125 for a fourplex. In high-cost areas, those figures rise to $1,599,375, $1,933,200, and $2,402,625.
The limit applies to the full loan amount, meaning land cost, construction cost, and financed upfront MIP combined. A project that runs over the local cap forces you to either put more cash down or look at a different loan.
Documents to Gather
Applying for an FHA One-Time Close requires standard mortgage paperwork plus construction-specific items:
- Two years of W-2s and complete federal tax returns, along with pay stubs covering at least the last 30 days.
- Bank statements from the most recent 60 days documenting your down payment funds and any required reserves.
- A signed construction contract with your builder listing the total project cost and completion timeline.
- Architectural blueprints and a Description of Materials form listing the type and quality of every major building component.
Self-employed applicants add a signed year-to-date profit-and-loss statement and the most recent three months of business bank statements showing deposits that back up the reported income.3HUD.gov. Mortgagee Letter 2022-09
From Application Through Move-In
Once you apply, an FHA-approved appraiser reviews the plans and specifications and produces a “subject to completion” appraisal that estimates what the finished home will be worth. That value sets the maximum loan amount and confirms the project fits within the county loan limit.
When underwriting signs off, you close. You, the lender, and the builder are now bound to the project, and your interest rate is locked before any construction begins.1HUD.gov. Mortgagee Letter 2019-08 Through the build, you pay interest only on the disbursed portion of the loan, keeping monthly costs down while the house goes up. The lender sends an inspector to verify progress at each milestone before releasing the next draw to the builder.
After the local building authority issues the certificate of occupancy, a final inspection confirms the home matches the plans and meets HUD standards. Your loan converts to its permanent fixed-rate form, and regular principal-and-interest payments begin.