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  • Writer's picturePreston Morris

FHA New Construction Loan Requirements | What You Need To Know

A Federal Housing Administration (FHA) loan is the only home mortgage insured by the government in the USA. It is one of the largest construction mortgage insurers in the world and is part of the U.S Department of Housing and Urban Development (HUD).

Who can do the work for an FHA construction loan?

Contractors who perform work for an FHA construction loan must meet certain guidelines. The FHA requirements for contractors include state licensure and at least three years of experience. In addition, contractors must not be listed on the General Services Administration's System for Award Management (SAM), HUD's Limited Denial of Participation (LDP) List, or HUD's Credit Alert Verification Reporting System (CAIVRS).

Looking For a FHA Construction Loan?

CLICK Here For Instant FHA Construction Loan Application!

FHA Construction Requirements

If you're considering using an FHA loan for new construction, it’s important to know what to expect.

Any FHA new construction loan will require the builder to provide a set of documents including a certification for plans and specs, wood destroying insect report, and a warranty of completion of construction. Homes with a well or septic tank will require additional health and safety reports.

Beyond that, the exact FHA construction loan requirements will depend on a few factors, including the type of property and the stage of the project.

The FHA defines 3 stages of a new construction project:

  • Proposed Construction: No permanent structural elements have been placed, including pouring the foundation.

  • Under Construction: A property that has some permanent elements but hasn't been issued a certificate of occupancy.

  • Existing Less Than 1 Year: A property that has had a certificate of occupancy for up to 1 year but has never been occupied.

How FHA Construction Loans Work

When you take out an FHA construction loan, you will need to work with a licensed contractor or builder.

Your lender will ask for an appraisal of the property to make sure the building and materials meet with the FHA's property standards.

If you are building a new home, you will request “draws” to pay the builder according to a schedule that is set before the closing.

When the construction is completed, your loan will be converted into a permanent mortgage.

Looking For a FHA Construction Loan?

CLICK Here For Instant FHA Construction Loan Application!

Pros and cons of an FHA new construction loan

There are pros and cons to every loan type. Let’s look at the pros and cons of the FHA construction loan, to determine if it’s right for you.


  • Low down payments

  • Low closing costs

  • Accessible to low-credit buyers

  • Low interest rates & fixed interest rates during the construction process

  • Ability to buy and build (or renovate) with one loan

  • Ability to complete small and large projects on your home


  • Borrowing limits: Depending on which loan you are applying for, the borrowing limits differ and can be restricting.

  • Required FHA mortgage insurance: All FHA loans require that the borrower pays for mortgage insurance and includes a one-time upfront premium.

  • It can be difficult to find providers.

Alternatives to an FHA Construction Loan

If you are looking for financing with different advantages and disadvantages, here are some alternatives to an FHA construction loan:

  • A conventional construction loan

  • State and local programs

  • Fannie Mae and Freddie Mac construction loans

  • USDA construction loans

  • VA construction loans

Looking For a FHA Construction Loan?

CLICK Here For Instant FHA Construction Loan Application!

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