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FHA Construction Loans: One-Time Close Basics for Credit and Down Payment
An FHA one-time close construction loan can finance a brand-new home with a low down payment option when you meet credit, builder, and property rules. You close once before construction starts, the lender funds the build in stages, and the loan converts to a regular FHA mortgage when the home is finished—without a second closing.
Here's how FHA construction loans work, what credit and down payment look like in practice, and how they differ from FHA renovation loans.
Prefer to watch? Our video How an FHA Construction Loan Works, Start to Finish walks through the whole process in nine steps, from pre-qualification to move-in.
What is an FHA one-time close construction loan?
An FHA one-time close (OTC) construction-to-permanent loan combines the construction financing and the permanent mortgage into a single FHA-insured loan. You qualify and close before the first shovel hits dirt. During the build, the lender releases funds through draws. When construction is complete and the home receives its certificate of occupancy, the loan converts to its permanent phase.
That single closing means one set of closing costs and one approval process up front. Construction timelines and what you owe while the home is being built vary by lender and project, so ask your lender how this works on your file.
How much down payment do you need for an FHA construction loan?
Many FHA construction programs offer a low down payment option for eligible borrowers. That is one of the main reasons buyers look at FHA for a new build when conventional construction loans ask for more equity.
A few realities still apply:
- Appraisal gaps, large loan amounts, or weaker credit can mean you need more cash
- Land you already own may count as equity on many construction loans, which can reduce cash at closing
- Closing costs and prepaid items are separate from the down payment
Always confirm the lender's required cash to close, not just the headline down payment.
What credit score do you need?
HUD publishes minimum credit score guidance for standard FHA purchase loans, and lower scores can mean a larger required down payment. Construction lenders commonly set higher credit floors than the agency minimum.
In practice, many FHA construction lenders set their own credit standards above HUD's minimum, may require usable credit scores from more than one credit bureau, and rely on automated underwriting. Manual underwriting is often not available on construction products. Requirements vary by lender, so a pre-qualification conversation is the fastest way to know where you stand.
Who can build the home?
FHA construction lending is builder-focused. Expect these common rules:
- Licensed general contractor. You typically cannot act as your own GC or do DIY / self-help work
- Fixed-price contract. Cost-plus contracts are often ineligible; the contract should cover everything needed for a certificate of occupancy, including site prep
- Builder approval. The lender reviews the builder's license, insurance, experience, and draw process before closing
If your preferred builder has never worked with FHA construction draws, a construction-savvy loan officer can walk them through the paperwork early so the file does not stall.
What property types are eligible?
Many FHA one-time close programs finance proposed construction only—meaning the home is not already under construction. Permanent structural work such as footers or a foundation already in the ground often makes the loan ineligible. Site clearing alone may be treated differently by some lenders; ask before any work starts.
Eligible property types commonly include:
- Site-built single-family homes
- Modular and some hybrid modular homes
- Barndominiums (when they meet residential and appraisal standards)
- Certain manufactured homes, often with brand, size, or foundation limits
- Some 2- to 4-unit homes if you occupy one unit (future rent from other units often cannot be used to qualify)
Attached homes, co-ops, many condos, container homes, working farms, and mixed-use properties are frequently ineligible. Minimum living-area rules and state availability can also apply. When in doubt, have the lender confirm the property type before you order plans.
FHA construction loan vs. FHA 203(k): what's the difference?
This is one of the most common mix-ups.
| FHA construction-to-perm (OTC) | FHA 203(k) | |
|---|---|---|
| What it finances | Building a new home from the ground up | Buying or refinancing an existing home and renovating it |
| Typical use | Vacant lot or teardown with a full new build | Repairs, remodeling, and rehab of a standing house |
| Timing of work | Proposed construction before permanent structure starts | Work on a property that already exists |
| Closing structure | Often one-time close construction-to-permanent | Purchase or refinance plus renovation escrow |
If the house already exists and you want to renovate, explore 203(k) or other renovation options. If you are building new, you need a true construction-to-permanent loan—not a renovation product.
Does FHA mortgage insurance apply on a construction loan?
Yes. FHA loans require mortgage insurance (often called MIP). How it is calculated and how long it lasts depends on the loan amount and current HUD rules. Details can change, and construction products may handle the construction period differently than a standard purchase. Ask your lender for the MIP estimate on your Loan Estimate rather than relying on a blog rule of thumb.
What else do lenders usually require?
Beyond credit and down payment, many FHA construction files include:
- A detailed budget and draw schedule
- A contingency reserve (sized by the lender based on your project)
- An as-completed appraisal based on plans and specs
- Proof of permits where required (rules vary by state and whether you already own the lot)
- Reserves and documentation that satisfy automated underwriting
If the build runs past the lender's construction deadline, an extension may be possible but can involve fees or updated documentation. Build a realistic timeline with your contractor from the start.
Frequently asked questions
Can I get an FHA construction loan with a low down payment?
Often, yes, when your credit and file meet the lender's construction guidelines and the loan stays within FHA limits. Many lenders still want stronger credit than the basic FHA purchase floor.
What credit score do FHA construction lenders want?
HUD's published minimums are a starting point, and lower scores can require a larger down payment. Construction lenders often set their own credit standards above HUD's minimum, and requirements vary by lender.
Can I be my own contractor on an FHA construction loan?
Generally, no. Most FHA construction programs require a licensed general contractor and a fixed-price contract.
Can I use FHA if construction has already started?
Usually not for one-time close construction-to-perm once permanent structural work (such as footers or foundation) is in place. Proposed construction is the typical path.
Is an FHA construction loan the same as a 203(k)?
No. 203(k) renovates an existing home. An FHA construction-to-permanent loan finances a new build.
Ready to explore an FHA construction loan?
If a low down payment option for eligible borrowers and a single closing sound like a fit for your new build, we'll connect you with lenders who work with builds like yours. Get connected with a construction lender at My Construction Path.
My Construction Path is not a lender and does not make loans or credit decisions. We connect you with lenders who may be able to help. Not all borrowers will qualify. Equal Housing Opportunity. Requirements vary by lender, loan program, and location. This article is for general education and is not a commitment to lend. Not affiliated with or endorsed by HUD or the Federal Housing Administration.