fha loan for building a home: a clear guide for first-time builders

Building from scratch can feel daunting, but an FHA construction-to-permanent option makes it more approachable. Often called the One-Time Close, it wraps the construction phase and your long-term mortgage into a single closing, reducing repeated fees and paperwork.

How it works

During construction, the lender releases funds in draws to your approved builder. You may pay interest only on money disbursed, then convert to a fixed mortgage when the home is complete and passes final inspection and appraisal.

Key benefits and costs

Low down payment-as little as 3.5% with qualifying scores-plus more flexible credit guidelines. Expect mortgage insurance: an upfront MIP and an annual premium. The property must be your primary residence, meet FHA standards, and use a licensed contractor.

What lenders review

• Detailed plans and a realistic budget with contingencies
• Builder credentials and experience on similar projects
• Lot ownership or purchase contract and clear title
• Reserves to cover overruns and interest during builds

Quick tips

Get preapproved early, compare lender overlays, lock timelines in the contract, and keep change orders minimal to protect your budget.