FHA Construction to Permanent Loan
Have you been looking to purchase your dream home but found yourself discouraged by the lack of available inventory? You may have even started considering building a home. If so, you may have questions about how financing would work.
Most people who go the route of building a home will use a construction to permanent loan. Keep reading as we discuss what exactly an FHA construction to permanent loan is and how you can secure one.
An FHA construction to permanent loan, sometimes called an FHA one-time close construction loan, is a single loan that finances the purchase of land and the construction of a house. Once the home is built, everything rolls into a permanent loan. The Federal Housing Administration (FHA) backs these loans.
With an FHA construction loan, the days of separately securing a short-term construction loan and then a long-term traditional mortgage are gone. Now, you can have both in a single closing. When the construction of your dream home is complete, the short-term loan becomes a permanent traditional mortgage.
Why should you consider an FHA construction to permanent loan if you want to build your home? Consider these benefits:
Lenders want you to meet specific FHA one-time close construction loan requirements. Expect eligibility requirements to include:
So, you've decided to pursue an FHA construction to permanent loan to finance the construction of your dream home. What does the loan process involve?
When using an FHA loan, you must be aware of loan limits. They vary based on where you live. In 2025, typical loan limits are $524,225. However, if you live in an area with a high cost of living, the limit increases to $1,209,750.
Before you begin shopping for land and planning construction, it's a good idea to know the FHA maximum loan limits for your county. You can check the loan limits using the FHA Mortgage Limits tool on the HUD website. It’s also important to speak with contractors in your area to understand how much your project will cost to ensure you stay within the required limits.
Once the home's construction finishes, you can move in. At this point, your construction loan converts to a traditional mortgage, and your payments will typically begin 60 days after the issuance of the certificate of occupancy or final compliance inspection, whichever is later.
Some of the documents your lender may require to obtain an FHA one-time construction loan include:
Lenders also require documentation from contractors, including:
Before taking the jump and getting an FHA construction to permanent loan, there are some downsides to consider.
A contingency reserve is common when building a home. This reserve is usually 5% to 10% of the building costs and helps cover any unexpected expenses during construction. Without a reserve, additional costs are paid out of pocket.
You can use a one-time FHA construction loan to build a multi-unit property, but you must follow some guidelines.
Because the FHA classifies any property with one to four units as single-family housing, you can use a one-time FHA construction to permanent loan as long as you live in one of the units for at least two years.
Building something with five or more units is considered a multi-family building, and you’ll need to use an FHA multifamily construction loan under the HUD 221(d)(4) program. These typically have higher loan limits and stricter loan eligibility.
Generally, you cannot be your own builder when using an FHA construction to permanent loan. The FHA requires using a licensed builder with proper insurance coverage.
If the construction on your home takes longer than anticipated, you need to file for an extension. Usually, you begin with a 12-month construction phase, but you may apply for a six-month extension.
