How to Get FHA Construction Loans

Low-cost down payments and less-than-stringent credit requirements make FHA construction loans ideal for you if you want to build a new property or rehabilitate an existing home. It is a viable option even if you have a less-than-perfect credit score or lack the savings for a down payment. The only challenge is in securing the loan as it can be time-intensive, with plenty of requirements to submit in order to be eligible.

Different kinds of FHA construction loans

There are two types of FHA construction loans that you can get: a construction-to-permanent loan and the 203(k) rehabilitation loan.

Often called the one-time close loan, the FHA’s construction-to-permanent loan is designed for buyers looking to build a new property. The loan will fund the construction of the home, and once it is done, the loan converts into a permanent loan that you pay every month like a traditional mortgage. Only one closing is required for both loans.

Meanwhile, the 203(k) rehabilitation loan is designed for buyers purchasing an existing home. The loan covers repairs, improvements, and other renovations required on the property. It can be a good option for the so-called “fixer-upper” home.


Requirements for eligibility

Here are the requirements for a construction-to-permanent loan:

  • Have a sales contract with a licensed, FHA-approved builder
  • Own the lot on which the property is being built
  • Pay at least the FHA minimum 3.5% down payment
  • Pay both an upfront and annual mortgage insurance premium
  • Have at least 580 credit score, though some lenders set a higher  minimum
  • Have no delinquencies or defaults on an FHA loan in the last three years
  • Meet the HUD’s minimum property standards for safety and security

Here are the requirements for a 203(k) loan:

  • Pay at least the FHA minimum 3.5% down payment
  • Pay both an upfront and annual mortgage insurance premium
  • Have a 580-640 credit score
  • A total loan balance lower than your area’s maximum limit


  • Be the owner and primary occupant of the property you are rehabilitating
  • Be performing one of the eligible activities approved by HUD
  • Have no delinquencies or defaults on an FHA loan in the last three years
  • Have bids and contracts from approved contractors, detailing your renovations, their costs, and the timeline of the projects

You can have your dream home through FHA construction loans. Just find a lender, a builder, and contractor familiar with FHA loans, and get your project started!