FHA Construction Loans

FHA construction loan

If you’re looking into construction loans, then you’re either building a new home from the ground up or buying a fixer-upper home and renovating it.

You may be wondering how you can get a construction loan to pay for the project.

This article takes an in-depth look at FHA construction loans, how they work, and how to qualify.

FHA Loan Rates (December 2020)

Interest rate


30-year fixed-rate



15-year fixed-rate



5/1 adjustable-rate



What is an FHA Construction Loan?

The Federal Housing Administration, a division of the US Department of Housing and Urban Development, or HUD, created the FHA loan program to make getting a mortgage easier for consumers. These are also called construction to permanent loans.

With an FHA construction loan, you will close on the mortgage before breaking ground. The funds go into an escrow account, and disbursements will come in various stages after being inspected.

Before the remaining funds are disbursed, there is a final inspection to ensure the home meets all FHA housing standards.

A construction loan’s credit requirements are much higher than a traditional FHA loan because of the complexity and risk it involves. Typically lenders will require you to have a 680 or higher credit score.

Construction-to-Permanent Loan –  Also referred to as a construction-to-perm loan, is an FHA loan to build a house. The costs of buying your own land and lender fees into the loan.

FHA 203(K) Loans – FHA 203k rehab loans are much easier to locate lenders for. A 203k loan is a type of FHA loan that lends money to purchase a home and additional cash to make improvements or repairs to the property in one loan.

Streamline 203k Loans – A quicker process reserved for homes that need mostly cosmetic repairs, such as flooring. The maximum cash amount is $35,000.

Standard 203k Loans – For properties that more extensive repairs such as plumbing and foundation repairs. No limit to the amount of cash you’re able to receive for repairs.

FHA One-Time-Close Construction Loan – How to Qualify

The loan requirements for the one-time-close FHA construction loan is the same as a standard FHA loan.

Borrowers with a 580 or higher credit score are eligible with just a 3.5% down payment. Borrowers with a credit score of at least 500 may qualify with a larger down payment of 10%.

500-579 credit score

10% down payment

580+ credit score

3.5% down payment

FHA construction loans are only available to homebuyers who plan to occupy the property as their primary residence.

Loan Requirements

2020 FHA Loan Requirements

• 580 credit score with 3.5% down

• 500-579 score with 10% down

• Maximum 50% debt-to-income ratio

• Two years of stable employment and income history

• For primary residence only

• 24 month waiting period after a foreclosure or bankruptcy

• 1% of student loan debt added to DTI ratio

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FHA Loan Limits

Your debt-to-income ratio determines the loan amount your approved for up to the FHA loan limit which varies by state and county.


Low Cost Area

High Cost Area

Guam, Hawaii, Alaska, Virgin Islands

















See How Much House You Can Afford