In short
An FHA construction loan is an FHA-insured, usually one-time close mortgage that finances building a new primary home with as little as 3.5% down. Construction investors set a 620 minimum credit score, land equity can often count toward the down payment, and FHA mortgage insurance applies.
Reviewed by Scottie Campbell, NMLS #1610726 · Last updated October 18, 2026
What is an FHA construction loan?
An FHA construction loan is an FHA-insured mortgage that finances building a new primary residence, typically through a one-time close. It covers the land (or uses land you own) and the construction, pays your builder in inspected draws and becomes a regular FHA mortgage when the home is finished. The minimum down payment is 3.5%. FHA allows scores as low as 500 on standard loans, but construction investors set a 620 minimum.
Key takeaways
Most people think FHA is only for buying an existing house. It isn't. An FHA construction loan lets you build a new home with the same 3.5% down payment that makes FHA so popular with first-time buyers, all in one loan with one closing. I'm Scottie Campbell with Waymaker Mortgage Company, and I'll show you how the credit, down payment and builder pieces fit together for your build.
FHA Construction in Plain English
An FHA construction loan is an FHA-insured mortgage that covers building a new home, usually as a one-time close. The same program that helps so many people buy their first existing home can also finance a home built from the ground up, with the same 3.5% down payment and the same mortgage insurance structure.
The loan pays your builder in inspected stages during construction. When the home is finished, the loan simply continues as a standard FHA mortgage. One application, one closing, one loan.
The 620 Credit Score, and Why It's Higher Than Regular FHA
Here's something a lot of people don't know. FHA itself allows credit scores as low as 500 on a standard purchase. But construction carries more moving pieces than buying a finished house, so the investors who fund FHA construction set their own floor at 620.
If you're at 620 or above, we can talk about building right away. If you're below that, quite frankly, you still have good options:
- Buy an existing home now. A standard FHA purchase allows 3.5% down at 580 and up, or 10% down with scores from 500 to 579.
- Build later with a plan. I'll put together a Mortgage Action Plan that shows exactly what moves your score toward 620, in what order, and roughly how we'll track it.
Can't do it now doesn't mean can't do it ever. I never want anyone to feel judged about their credit. Life happens, and my job is to show you the how.
3.5% Down, and How Your Land Can Help
The minimum down payment on FHA construction is 3.5%, figured on the total project: land plus construction. A few things can make that easier:
- Gift funds. FHA allows your down payment to come from a gift from family.
- Land you already own. In many cases, equity in land you own can count toward your down payment. If your lot is paid off or has substantial equity, you may need little or no additional cash for the down payment. How long you've owned it can matter, so we'll check.
- Closing costs. Some costs can be covered by builder or seller credits within FHA limits.
Mortgage Insurance on an FHA Build
FHA construction carries the same mortgage insurance as any FHA loan:
- Upfront MIP, a one-time premium usually financed into the loan amount
- Annual MIP, divided into monthly payments
On many FHA loans, MIP stays for the life of the loan. Some homeowners later refinance into a conventional loan to remove it once they've built enough equity. That's exactly the kind of long-term thinking a Total Cost Analysis is for: we look at what the loan costs over the time you'll own the home, including MIP and a possible refinance down the road, not just what it costs on day one.
What FHA Looks for in Your Builder and Your Plans
Because the government insures the loan, FHA construction comes with standards for the project itself:
- A licensed, insured builder who is reviewed and approved by the lender
- Complete plans and specifications, plus a detailed, written construction contract
- An appraisal based on the plans, showing the finished value supports the loan
- Inspections at each draw stage and a final inspection at completion
- FHA loan limits for the county where you build
- Primary residence only (you need to live in the home)
FHA Construction vs. Conventional Construction
| FHA construction | Conventional construction | |
|---|---|---|
| Minimum credit score | 620 | 620 |
| Minimum down payment | 3.5% | Depends on your scenario |
| Mortgage insurance | Upfront and annual MIP, often for the life of the loan | PMI when you put less than 20% down, removable once you reach enough equity |
| Occupancy | Primary residence | Broader options |
| Gift funds | Allowed for the full down payment | Allowed with conditions |
For a lot of families stretching to build their first home, FHA keeps the cash needed up front manageable. For borrowers with stronger credit and more saved, conventional can cost less over time. I'll run both so you can compare real numbers. As for rates: Your rate depends on your scenario and the day's market. Reach out and I'll price it for real.
How I'd Approach Your FHA Build
- We review your credit, income and savings, plus any land you own.
- I get your builder's information to start their review early.
- We line up the plans, specs and contract for the appraisal.
- I take your file to an investor partner whose FHA construction guidelines fit. Waymaker Mortgage Company works with multiple investors, so if one investor's rules don't fit, I go to one that does.
- We close once, and you watch your home go up.
If you're thinking about building near Georgetown, TX with FHA, feel free to text me. I'm here to serve, and I'd love to help you get rocking and rolling.
Information on this page is general and educational. It is not a commitment to lend or an offer of credit. Programs, guidelines and eligibility change and depend on your full scenario. Waymaker Mortgage Company, NMLS 2440476. Equal Housing Lender.
Quick facts
- Loan type
- FHA-insured construction, typically one-time close
- Minimum credit score
- 620 (FHA allows 500; construction investors set 620)
- Minimum down payment
- 3.5% of land plus construction
- Mortgage insurance
- Upfront and annual MIP
- Gift funds
- Allowed for the full down payment
- Occupancy
- Primary residence only
Is this loan right for you?
Who it's for
- First-time and move-up buyers who want to build with a small down payment
- Borrowers with credit scores of 620 and up who prefer FHA flexibility
- People who own land and want their equity to count toward the build
- Families receiving gift funds for their down payment
Who it may not fit
- Anyone building a second home or investment property
- Borrowers with scores below 620 who need to build right away (a standard FHA purchase may fit better for now)
- Strong-credit borrowers with 20% down who want to avoid mortgage insurance
Pros and cons
Pros
- Minimum down payment of 3.5%
- Gift funds allowed for the full down payment
- Land equity can often count toward the down payment
- One closing covers construction and the permanent mortgage
- FHA is generally more forgiving of past credit events
Trade-offs to weigh
- 620 minimum credit score, higher than standard FHA
- Mortgage insurance often lasts for the life of the loan unless you refinance
- Primary residence only, and FHA loan limits apply
Frequently asked questions
What credit score do I need for an FHA construction loan?
The minimum is 620. FHA itself allows scores down to 500 on standard purchases, but the investors who fund FHA construction set 620 because building carries more risk than buying a finished home. If you're below 620, a standard FHA purchase or a Mortgage Action Plan to build later are both good paths.
How much do I need to put down to build with FHA?
The minimum is 3.5% of the total project cost. Gift funds from family are allowed, and in many cases equity in land you already own can count toward the down payment, which can reduce or even cover the cash you need to bring.
Can I build a vacation home or rental with FHA construction?
No. FHA construction is for a primary residence you'll live in. If you're building a second home or investment property, we'd look at other options.
Does FHA construction have mortgage insurance?
Yes. Like every FHA loan, it has an upfront mortgage insurance premium, usually financed into the loan, and an annual premium paid monthly. On many FHA loans it lasts for the life of the loan, though some homeowners refinance into conventional later to remove it.
Does my builder need to be approved?
Yes. Your builder is reviewed for licensing, insurance and experience, and the plans, contract and appraisal all have to meet FHA and lender standards. Send me your builder's information early so their review runs alongside your approval.
What rate will I get on an FHA construction loan?
Your rate depends on your scenario and the day's market. Reach out and I'll price it for real.
Related loan programs
Low down payment options, dozens of down payment assistance programs and a Greenlight Approval that helps your offer compete. It's never a no. It's always a how.
Flexible credit, low down payment, and dozens of assistance programs. I'll show you how FHA fits your plan, then you decide.
No monthly mortgage insurance, no minimum credit score on my end, and VA loans funded in house by Waymaker Mortgage Company with underwriting through multiple investors.
Last updated October 18, 2026 · Reviewed by Scottie Campbell, NMLS #1610726. This page is educational and not a commitment to lend; program details change — ask for current figures.