Build new. One closing.

A traditional construction project needs two loans: a short-term construction loan, then a "take-out" mortgage that refinances it when the home is done. Two closings, two sets of closing costs, and a requalification in between — if rates move or your income changes mid-build, the take-out can fall apart with a half-finished house on the line.

The FHA One-Time Close collapses that into a single FHA-insured loan that closes before ground breaks. During construction you make interest-only payments on the drawn balance. When the home is complete and the certificate of occupancy is issued, the loan automatically modifies to a standard 30-year fixed FHA mortgage — no new application, no new appraisal, no second closing.

Because the permanent financing is locked before construction starts, the borrower carries no take-out risk. The price of admission is standard FHA mortgage insurance: a 1.75% upfront premium (UFMIP) financed into the loan, plus the annual MIP of 0.15%–0.75% that applies to every FHA loan.

Qualifying for an FHA construction loan looks like qualifying for any FHA loan: most lenders want a 620 FICO on the OTC product (some accept 580 with overlays), and FHA's AUS commonly approves debt-to-income ratios up to 56.99% with strong compensating factors. The property must be your primary residence — FHA does not finance investment-property construction.

The total loan amount — land plus construction plus financed UFMIP — must fit within your county's FHA loan limit. For 2026, the FHA floor is $541,287 in standard-cost counties and the ceiling is $1,249,125 in high-cost counties (per HUD's CHUMS limits, effective January 1, 2026). Look up your county before designing the build — the limit caps the project budget.

The down payment is 3.5% of the total acquisition cost (lot plus construction). Gift funds are permitted, the same as on any FHA loan, and if you already own the lot, its equity can cover some or all of the down payment — see the land section below.

The One-Time Close finances the lot purchase and the construction in the same closing — you don't need to buy the land first with cash or a separate lot loan. The purchase price of the lot simply becomes part of the total acquisition cost the loan is sized against.

If you already own the lot, its value works in your favor: equity in the land counts toward the 3.5% minimum investment. On a lot with enough equity, borrowers frequently close the construction loan with little or no additional cash out of pocket. If the lot was purchased more than 12 months before the application, most lenders use its current appraised value rather than the original purchase price.

One restriction to know: FHA OTC requires construction to start after the loan closes. The appraisal cannot show anything beyond foundation completion at the start, and re-using an existing old foundation is not permitted on FHA — that scenario routes to a conventional construction product instead.

The builder and the project must be approved by the lender before clear-to-close: a licensed, insured general contractor with a track record, a fixed-price construction contract, plans, specs, and a budget. FHA does not allow owner-builder construction — you cannot act as your own general contractor on an FHA OTC, even if you hold a GC license. (That path exists only on certain conventional construction programs.)

During the build, the lender disburses construction funds in draws tied to completed work, verified by inspection. A contingency reserve of 5% of the construction cost is held by the lender to absorb overruns and change orders. You pay interest only on the balance actually drawn — early in the build the payments are small and they grow as the home progresses.

Construction must finish within 11 months. Pre-started projects — where the builder or borrower broke ground before the loan was submitted — are not permitted on FHA OTC; construction must begin after loan submission.

FHA OTC isn't limited to stick-built construction. A new manufactured home placed on a permanent foundation is eligible as a 1-unit, non-jumbo transaction — the loan finances the land, the home, the foundation, and the site work in the same single closing. The home must be new (first installation), titled as real property, and meet HUD's manufactured-housing construction standards.

Modular homes — factory-built sections assembled on site that meet the same state and local building codes as site-built homes — are treated as site-built construction for FHA purposes, with no special restrictions.

Building new isn't always the answer. If the better deal in your market is an existing home that needs work, the FHA 203(k) renovation loan finances the purchase and the rehab in one loan — same FHA credit flexibility, applied to remodeling instead of ground-up construction.

If you're an eligible veteran or service member, the VA One-Time Close does the same single-close construction structure at up to 100% LTV — zero down. And if you have 5%+ down and stronger credit, a conventional OTC at up to 95% LTV avoids FHA's upfront and annual mortgage insurance entirely, and it's the only route that permits pre-started construction or existing-foundation scenarios.