Building a home on your own lot can be a rewarding way to become a new home owner. FHA construction loans offer some important advantages over conventional alternatives including a low down payment requirement for those who qualify.

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Down Payment Rules for Different Types of Construction Loans

October 5, 2022

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Building a home on your own lot can be a rewarding way to become a new home owner. FHA construction loans offer some important advantages over conventional alternatives including a low down payment requirement for those who qualify.

But what are the down payment rules for the different types of construction loan? How much do you have to save to put down on a home loan where you build the home instead of buying an existing one?

Conventional Construction Loan Down Payment Rules

Conventional construction loans (single-close loans as well as two-close construction loans) will vary depending on the lender, your FICO scores, and other factors. In general you may be asked to put between 5% and 20% down, and you’ll have to pay 20% down to avoid paying mortgage insurance premiums on the loan.

VA Construction Loan Down Payment Requirements

For qualifying veterans, a VA construction loan provides huge advantages. But these loans aren’t offered to everyone, so the zero-down construction loan option isn’t a choice for many. However, there is another government-backed construction loan option with a low down payment that could help. (See below.)

FHA One-Time Close Construction Loan Down Payment Rules

The FHA One-Time Close construction loan is a government-backed mortgage offered to any financially qualified applicant. It does not require military service and FHA mortgages are not need-based loans. FHA construction loans require a minimum 3.5% down payment.

FHA construction loans may technically qualify for certain down payment assistance programs but you may find participating lenders unwilling to approve a construction loan for someone who needs down payment help.

What to Know About Down Payments on Construction Loans

Whether you wind up using an FHA single-close construction loan or not, you should know there are important rules about the sourcing of your down payment you will have to follow. Your lender is required to ensure the money does not come from non-collateralized loans such as pink slip or payday loans.

What’s more, FHA loan down payment money must not come from any third party with a financial stake in the outcome of the mortgage loan transaction. Your lender will require you to certify in writing where your loan funds are from, how long you have had them, and where the funds are held prior to submitting to the lender.


Construction Loans at OneTimeClose.com FHA, VA, and USDA: One-Time Close Loans

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Want More Information About One-Time Close Loans?

We have done extensive research on the FHA (Federal Housing Administration) and the VA (Department of Veterans Affairs) One-Time Close Construction loan programs. We have spoken directly to licensed lenders that originate these residential loan types in most states and each company has supplied us the guidelines for their products. We can connect you with mortgage loan officers who work for lenders that know the product well and have consistently provided quality service. If you are interested in being contacted by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.

FHA.com provides information and connects consumers to qualified One-Time Close lenders to raise awareness about this loan product and to help consumers receive higher quality service. We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.

Please note that investor guidelines for the FHA and VA One-Time Close Construction Program only allows for single family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes). In addition, the following homes/building styles are not allowed under these programs, including but not limited to: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes, Dome Homes, Bermed Earth Sheltered Homes, Tiny Homes, Accessory Dwelling Units, or A-Framed Homes.

Contact Us: Send Us Your Request – Spam Safe

Please send your email request to [email protected] which authorizes FHA.com to share your personal information with one mortgage lender licensed in your area to contact you.

1. Send your first and last name, e-mail address, and contact telephone number.

2. Tell us the city and state of the proposed property.

3. Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good - (640-679), Fair – (620-639) or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.

4. Are you or your spouse (Co-borrower) eligible veterans? If either of you are eligible veterans, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio per VA will allow – there are no maximum loan amounts as per VA guidelines. Most lenders will go up to $1,500,000 and review higher loan amounts on a case-by-case basis. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.

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