Can FHA Loans Be Used For New Construction? | Build With FHA

Yes—FHA financing can finance a newly built home, either by purchasing a brand-new property or by using an FHA construction-to-permanent structure through an FHA-approved lender.

Building a house is a stack of decisions that all touch the loan: the land, the builder, the plans, the budget, the schedule, and the final inspection. FHA can fit into that plan, yet only when the deal is set up in a way the lender can document from start to finish.

This article explains the FHA paths people use for new construction, what lenders ask for, and how to avoid the common snags that burn time and money.

How FHA New Construction Financing Usually Happens

Most FHA “new construction” deals fall into one of these two setups:

• Buy a newly built home that’s already finished (or close to finished) from a builder.
• Finance the build using a construction-to-permanent structure that controls draws, inspections, and the conversion into the long-term FHA mortgage.

A third option gets mixed into the conversation: FHA 203(k). That program is for rehab on an existing property. It’s not the usual tool for a ground-up build, so most new builds use one of the two setups above.

Ways People Use FHA For A New Build

Standard FHA Purchase Of A Finished New Home

If the home is complete, the mortgage works like a normal FHA purchase. The difference is the paperwork tied to the home’s new-build status: permits, final sign-offs, and lender documentation that shows the home is ready for occupancy and meets FHA requirements.

This is often the simplest route for buyers because construction draws are not part of the loan. The builder carries the construction risk until the home is done.

Construction-To-Permanent (One Closing Or Two)

A construction-to-permanent structure funds the build, then rolls into the long-term FHA mortgage after completion. FHA policy recognizes both one-closing and two-closing structures in HUD guidance to lenders.

• One closing. You close once at the start. Funds are released in stages during the build. When the home is done, the loan converts to the permanent FHA mortgage without a second closing.
• Two closings. You close a construction loan first, then close again for the FHA mortgage after completion.

Not every lender offers construction-to-permanent FHA loans. Even when FHA allows a structure, lenders can add overlays like higher score targets, larger reserves, and stricter builder rules.

FHA Rules That Matter Most For New Construction

For new construction, lenders spend most of their energy proving three things: the builder is acceptable, the build is properly inspected, and the finished home is legally occupiable. That proof comes from a mix of the FHA policy handbook, local documentation, and HUD forms.

If you want to see the official handbook entry point, HUD maintains the Single Family Housing Policy Handbook 4000.1 information page, including links to updates.

Permits And Certificate Of Occupancy

Expect the lender to request evidence of local permits and a final certificate of occupancy (or the local equivalent) before the loan can be finalized for a finished home, or before a construction-to-permanent loan can convert.

Inspections During Construction

Construction draws are tied to work completed. Lenders typically require inspections at stages that match the draw schedule. The exact structure depends on the construction status at appraisal time: proposed construction, under-construction, or completed within the last year.

Warranty Paperwork

For certain property types and statuses, FHA new construction files can require warranty documentation. One common HUD document in new construction files is the “Warranty of Completion of Construction.”

You can view the form here: HUD Form 92544, Warranty of Completion of Construction.

Money Basics That Decide Whether The Build Fits FHA

New construction is easy to over-design. FHA math pulls you back to what the loan can finance in your area and for your income.

Down Payment And Cash To Close

FHA purchase loans often allow a 3.5% down payment when the borrower meets FHA’s minimum credit criteria. Lenders can require more through overlays. On construction-to-permanent loans, lenders also tend to require extra reserves beyond the down payment and closing costs.

Loan Limits By County

FHA sets a maximum insurable loan amount by county. If your plans put you near the cap, check the limit before you finalize the build budget.

Use HUD’s official FHA Mortgage Limits search page to confirm your local limit.

“As-Completed” Appraisal

Construction lending often relies on an appraisal that estimates the value of the finished home based on plans, specs, and comparable sales. If the “as-completed” value comes in low, you may need to trim specs, bring extra cash, or adjust the contract price.

Draws And Interest During The Build

Construction funding is typically released in draws, not as one lump sum. Payment rules vary by lender and structure, so ask how interest is calculated during construction and what happens if the build runs past the estimated timeline.

The Consumer Financial Protection Bureau’s page on what a construction loan is gives a clear overview of staged disbursements and how construction loans differ from standard mortgages.

Next are the documents that usually decide approval. Getting these ready early is the easiest way to save time.

Documents Lenders Typically Require Before Closing

Build Contract With Itemized Costs

Lenders want a signed contract that shows what will be built and what it will cost. A one-page “base price” quote rarely works. Expect a line-item budget that matches the plans and specs.

Plans, Specs, And A Clear Scope

The plans and specs feed the appraisal and underwriting. Keep one “current” version and track changes with written change orders. When changes happen late, lenders may pause draws or request revised paperwork.

Draw Schedule And Contingency

A draw schedule ties funds to stages like foundation, framing, mechanicals, and final completion. Many lenders also require a contingency line in the budget for cost overruns and repairs found during inspection.

Builder Credentials And Insurance

Expect requests for licensing, insurance, and a track record with similar projects. The builder also has to accept lender draw controls and inspection timing.

Table 1: after ~40%

FHA New Construction Scenarios And The Best-Fit Path

This table helps you match your plan to the FHA route that usually fits, plus the underwriting items that most often decide approval.

Scenario	FHA Path	Approval Pressure Point
Buying a completed new build from a builder	Standard FHA purchase	Final occupancy proof and new-build documentation
Buying a home that’s near completion	Standard FHA purchase with timing controls	Completion status, final inspections, closing date alignment
Building on land you already own	Construction-to-permanent	Builder approval, plans/specs, “as-completed” appraisal
Buying land and starting construction right away	Construction-to-permanent (lender program dependent)	Cash requirements and land documentation
Wanting one closing and one conversion step	One-closing structure	Lender overlays and reserve requirements
Accepting two closings to widen lender options	Two-closing structure	Second underwriting and closing costs
Buying an older home that needs heavy work	FHA 203(k) rehab	Contractor bids and rehab escrow controls
Trying to reduce construction risk on your side	Buy a finished new build	Builder finishes before your loan funds

Builder And Inspection Details That Often Decide The Deal

On a new build, you can be fully qualified and still lose the deal if the project side falls apart. These are the spots that most often cause delays.

Builder Won’t Follow Draw Controls

Draws are tied to inspections and proof of completed work. If a builder wants full payment early or refuses inspections, lenders tend to decline the project. Set expectations before you sign.

Permits Or Final Sign-Off Runs Late

No certificate of occupancy, no finish line. Track your local inspection calendar and build in extra time. A small scheduling slip can push closing out by weeks.

Underwriting Needs A HUD Construction Letter

HUD has issued lender guidance that clarifies construction-to-permanent structures and “building on own land” rules. If your lender references it, they’re pointing to official FHA policy guidance.

You can read it directly here: HUD Mortgagee Letter 2019-08.

Costs People Often Miss In A New Build Budget

Many build budgets start with the base price and upgrades. What causes stress later are costs that sit outside that number.

• Site work. Clearing, grading, utility hookups, driveway, septic or well.
• Soft costs. Permits, surveys, engineering, plan revisions, inspections.
• Change orders. A series of small changes can add thousands fast.
• Reserves. Many lenders want a cushion in the bank.

Write each change down, price it, and keep it tied to the contract. Clean records make underwriting and draw reviews easier.

Table 2: after ~60%

Preapproval Checklist For An FHA New Build

Use this list before you lock in plans or sign a build contract. It’s based on what lenders verify again and again during underwriting.

Item	What It Protects You From	Best Timing
Income and asset documents	Designing a home outside your payment range	Before picking plans
County FHA loan limit check	Budgeting above FHA insurable limits	Before final budget
Builder license and insurance proof	Late contractor rejection by the lender	Before signing
Plans, specs, and itemized budget	Appraisal mismatches and underwriting rework	Before appraisal order
Draw schedule and contingency	Cash crunch during construction	With final contract
Permit plan and occupancy timeline	Delays that push closing and rate lock	Before breaking ground
HUD warranty form (as requested)	Last-minute document gaps	Before closing

Choosing A Lender Who Can Actually Close The Loan

For a standard FHA purchase of a finished new build, most FHA lenders can handle the loan. For construction-to-permanent, the lender list is much shorter. Ask direct questions early, and ask them in writing.

Questions Worth Asking Before You Commit To A Builder

• Do you close FHA construction-to-permanent loans in my state right now?
• One closing or two, and what does conversion look like on paper?
• What builder screening rules do you use, and what documents do you need?
• How do you handle change orders after the appraisal is complete?
• What reserves do you require in addition to cash to close?

Can FHA Loans Be Used For New Construction? What To Expect

Yes. FHA can finance a newly built home, and it can work with certain construction-to-permanent structures when a lender offers them. The easiest way to keep the process calm is to line up the lender and the builder first, then lock in plans that fit FHA loan limits and the “as-completed” appraisal.