Quick Answer
A one-time close FHA construction loan enables first-time homebuyers to finance both the construction and long-term mortgage with a single application and closing.
With a minimum credit score of 620 and a 3.5% down payment, this loan offers a streamlined path to building a new home—especially for buyers with limited savings or moderate credit scores.
Start your FHA construction journey with GO Mortgage today.
What is a one-time close FHA construction loan?
A one-time close FHA construction loan—also known as an FHA construction-to-permanent loan—combines the financing for building a new home with the permanent mortgage into a single loan, requiring only one closing.
Unlike traditional construction loans, which require two separate closings (one for construction and one for the mortgage), the one-time close format simplifies the process, reduces fees, and locks in your mortgage terms before construction begins.
This loan is ideal for first-time homebuyers who want to build a new home but need affordable terms and a low down payment.
Credit score requirements for FHA construction loans
To qualify for an FHA one-time close construction loan, you typically need a credit score of 620 or higher.
While FHA guidelines technically allow scores as low as 580, most lenders set a higher minimum for construction loans due to the added risk and complexity.
Here’s how your score affects qualification:
- 620+: Eligible with standard terms
- 680+: May receive better interest rates and streamlined processing
- Below 620: May be ineligible for construction financing through FHA
Lenders also review your debt-to-income ratio (DTI), employment history, and credit report for late payments, collections, or delinquencies.
Down payment requirements for FHA construction loans
FHA construction loans require a minimum down payment of 3.5% of the appraised value or total project cost, whichever is lower. This low threshold makes it accessible for many first-time buyers.
You can use the following sources for your down payment:
- Personal savings
- Gift funds from family
- Grants from down payment assistance programs
- Equity from owned land
If you already own the lot where you plan to build, the appraised value of the land can often count toward the down payment.
Pros and cons of FHA one-time close construction loans
Pros:
- Low credit score requirement (620+)
- 3.5% down payment for qualified borrowers
- One-time closing saves on costs and simplifies the process
- Mortgage insurance may be more affordable than PMI for low scores
- Funds can be gifted for down payment and closing costs
Cons:
- Mortgage insurance premium (MIP) required for the life of the loan
- Builder must be FHA-approved
- More documentation and oversight during the construction phase
- May have higher interest rates compared to conventional loans
6-step FHA construction loan process
Understanding the step-by-step process helps you prepare for your FHA one-time close loan. Here’s how it typically works:
1. Prequalification and lender approval
Start by speaking with a lender that offers FHA construction loans. You’ll provide:
- Credit score and income documentation
- Employment history
- Debt-to-income calculations
Your lender will verify your eligibility based on FHA guidelines.
2. Find and approve a licensed builder
You must choose a licensed and insured builder who meets FHA requirements. The builder must submit documentation, including:
- Proof of license and insurance
- Work history and references
- Fixed-price construction contract
3. Submit construction plans and property details
You’ll need to submit a full construction package, which includes:
- Architectural plans
- Project budget
- Site information (including lot ownership)
- Draw a schedule and timeline
4. Home appraisal and underwriting
Your lender orders an appraisal based on the proposed completed home. FHA underwriting guidelines require:
- Verification of costs
- Review of builder credentials
- Confirmation that the appraised value meets loan standards
5. Close the loan
Once underwriting is complete, you’ll attend a single closing. The funds for construction are placed in an escrow account and then released in stages as the builder completes each phase of the project.
6. Construction phase and mortgage conversion
As your home is being built, the lender issues draws to the builder according to the schedule. After construction is complete, the loan automatically converts to a 30-year FHA mortgage, with no additional closing required.
Common mistakes to avoid with FHA construction loans
Even though FHA one-time close loans simplify the homebuilding process, many first-time homebuyers face delays or denials due to avoidable mistakes. Here are the most common pitfalls, and how to avoid them:
1. Choosing an unapproved or inexperienced builder
FHA loans require that the builder be licensed, insured, and FHA-approved. If your chosen builder lacks experience or fails to submit the proper documentation, the loan may not close. Always verify builder qualifications with your lender upfront.
2. Incomplete construction documents
Missing blueprints, cost breakdowns, or permits can stall the underwriting process. Be sure to provide a complete construction package, including a fixed-price contract and a draw schedule that has been approved by both the builder and the lender.
3. Overestimating appraised value
Your loan amount is based on the appraised value of the completed home, not just the construction budget. If the appraisal comes in low, you may need to bring additional funds to closing. Work with your builder to align your plans with local market values.
4. Skipping the budget for overruns
Unexpected costs during construction are common. Many FHA construction loans require a contingency reserve of 5–10% to cover unforeseen expenses. Failing to plan for this can delay construction or trigger a loan denial.
5. Changing jobs during the loan process
Your lender will verify employment and income before closing. Changing jobs, altering your income, or taking on new debt during this time can affect your loan approval. Try to maintain financial stability until after the loan has closed.
FAQ: First-time FHA construction loan homebuyers
Q: Can first-time homebuyers use an FHA construction loan?
A: Yes. FHA one-time close construction loans are specifically helpful for first-time buyers who may not have large down payments or high credit scores.
Q: What credit score is required for an FHA construction loan?
A: Most lenders require a minimum score of 620, although some may accept slightly lower scores with strong compensating factors.
Q: Can gift funds be used for the down payment?
A: Yes. FHA loans allow for 100% of the down payment to be covered by gift funds from a family member or approved donor.
Q: What types of homes can be built with an FHA one-time close loan?
A: The home must be a primary residence, built by a licensed contractor. Modular and manufactured homes may qualify with additional documentation.
Q: Can I use the loan to buy the land as well?
A: Yes. The loan can cover the purchase of the land, as well as construction costs and the permanent mortgage.
Start your new home journey with confidence
The FHA one-time close construction loan offers first-time homebuyers an affordable and simplified way to build a new home with low down payment requirements and flexible credit standards.
If you’re ready to take the next step toward building a home tailored to your needs, this loan may be the right fit.
Let GO Mortgage guide you through the FHA construction loan process.