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Construction loan types, compared honestly
Every program below solves a different problem. Qualification numbers are typical industry ranges — your actual terms depend on the lender and your full profile, which is exactly what the roadmap sorts out.
Conventional One-Time Close (Construction-to-Permanent)
Best fit: Strong credit (typically 680+), 15–25% down or equivalent land equity.
The gold standard: one closing covers the land and the build, your permanent rate is locked before ground breaks, and you pay interest only on drawn funds during construction. At completion the loan converts automatically to a normal mortgage — no second closing, no requalifying. Under current agency guidelines, construction periods generally can't exceed 12 months.
FHA One-Time Close
Best fit: Credit from ~620 (sometimes lower), down payments from 3.5%.
The most forgiving path to a new build. FHA's flexible credit guidelines and low down payment open construction lending to first-time builders who'd never clear conventional underwriting. Trade-offs: FHA loan limits cap the budget (mid-$500Ks in most areas, higher in high-cost counties), and mortgage insurance applies.
VA One-Time Close Construction
Best fit: Eligible veterans, active service members, and some surviving spouses.
$0 down on the entire project — land and construction — with no monthly mortgage insurance. The build must use a VA-registered licensed builder. If you've served, this is almost always the first program to price out.
USDA Rural Construction
Best fit: Moderate incomes building in USDA-eligible rural areas.
$0 down construction-to-permanent financing, but with two eligibility gates: the property must sit in a USDA-designated rural area (more of the map qualifies than people expect), and household income must fall under the county limit. An address check settles it in minutes.
Renovation Loans — FHA 203(k) & HomeStyle
Best fit: Buying a fixer-upper or transforming the home you own.
These roll purchase (or refinance) plus renovation into one loan, underwritten against the home's after-improved value. FHA 203(k) offers the flexible-credit path; conventional HomeStyle usually wins on pricing at 680+ credit. Work must be done by approved contractors on a lender-reviewed budget.
Lot & Land Loans
Best fit: Buyers securing land now and building in a year or three.
A dedicated land loan carries the lot until you're ready. The quiet superpower: when you later take a construction loan, the land's appraised value counts toward your down payment — often covering most or all of it. Expect somewhat higher rates and shorter terms than a mortgage.
The Owner-Builder Path
Best fit: Experienced builders acting as their own general contractor.
Being your own GC can save real money — and shrinks your lender pool to a handful of specialists, because most programs require a licensed builder of record. If you have construction experience or a builder's license, it's worth a conversation. If not, hiring a licensed GC (even in a supervisory arrangement) usually unlocks far better financing than going it alone.