USDA Construction Loan. Build with $0 Down

The USDA Section 502 Guaranteed Loan covers new construction in eligible rural and suburban areas. The loan funds the build, then converts to a 30-year mortgage at completion.

Check eligibility for USDA construction
New home under construction in a rural area financed with a USDA construction loan

USDA Construction-to-Permanent Loan at a Glance

Down payment

$0 down

Construction period

Up to 12 months

Closing structure

Single-close, one set of closing costs

Guarantee fee

1% upfront + 0.35% annual

Property type

New single-family primary residence

Location

USDA eligible rural or suburban area

Connect with a USDA Construction Lender

How the USDA Construction-to-Permanent Loan Works

It's a single loan with two phases: a construction period funded by draws, and a permanent mortgage that kicks in automatically when the home is done.

Phase 1

Application & lender approval

You apply for a USDA Section 502 Guaranteed loan with a USDA-approved lender. The lender reviews your income, credit, and eligibility — same criteria as a USDA purchase loan. The lender also reviews your builder and construction plans.

Phase 2

USDA approval & construction start

Once the lender approves the file, it goes to the USDA for a guarantee commitment. After USDA issues the commitment, construction can begin. The lender manages draw requests — funds are released in stages as construction milestones are verified.

Phase 3

Construction period

During construction you typically pay interest only on draws taken. The construction period is usually 12 months. Your lender will inspect the property at each draw stage to verify work completion before releasing the next disbursement.

Phase 4

Permanent loan conversion

When construction is complete and the final inspection passes, the loan converts to a standard USDA permanent mortgage — the same 30-year fixed structure as a purchase loan. You begin making full principal and interest payments.

The Section 502 Guaranteed Loan Program assists approved lenders in providing low- and moderate-income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas. Eligible applicants may purchase, build, rehabilitate, improve or relocate a dwelling in an eligible rural area with 100% financing.

USDA Rural DevelopmentSection 502 Guaranteed Loan Program

USDA Construction-to-Permanent Loan Requirements

If you already know USDA, the first two won't surprise you. The builder requirement is what's unique to construction loans — and easier to satisfy than most people expect.

1. Builder requirements

Your lender approves the builder directly because there is no national USDA builder registry. Any licensed, insured contractor can qualify. Ultimately, what lenders care about most is that your contractor has completed a similar project before.

  • Licensed and insured in the state where the home is being built
  • Must provide a fixed-price construction contract
  • Cannot be the borrower — owner-build is not permitted
  • Lender reviews track record and qualifications before approving

2. Borrower eligibility

  • Household income at or below 115% of area median income
  • U.S. citizen or qualified alien
  • Primary residence — not an investment property or vacation home
  • Credit score 640+ typical; lower scores may require manual underwrite
  • Debt-to-income ratio typically 41% back-end or lower
Check income limits by ZIP →

3. Property requirements

  • Land must be in a USDA-eligible rural or suburban area
  • New construction only — not a renovation or addition to an existing home
  • Must be a single-family primary residence
  • Home must meet USDA property standards when complete
  • Total loan (land + build) within USDA loan limits for the area
Check if your area is USDA-eligible →

Building Instant Equity

A new USDA construction home typically appraises for more than the land plus the cost of construction. That gap is equity at move-in you earned by structuring the deal from scratch, not by buying a finished house at the appraised price.

Step 1

Land and a Build Contract

Build Contract
$400,000
Land
+$20,000
Total Project
$420,000

Write the builder contract to cover closing costs up to 6%.

Step 2

Finance at $0 Down

Total Project
$420,000
Required Down Payment
$0

In an eligible area USDA can finance 100% of land plus construction.

Step 3

Unlock Instant Equity

Final Build Appraised Value
$460,000
Build Contract
-$400,000
Land Value
-$20,000
Financed Guarantee Fee (1%)
-$4,200
Net Equity at Move-In
$35,800

USDA financed 100%, so equity is appraisal minus land, construction, and the financed guarantee fee.

The Appraisal Gap Is Yours

The market values the finished house, not your construction contract. When the as-completed appraisal comes in above land plus build cost, that difference belongs to you at move-in. USDA still charges a 1% upfront guarantee fee (usually financed) plus 0.35% annual. Not in a USDA-eligible area? FHA construction works anywhere with 3.5% down, or use land you already own to cover that 3.5%.

More USDA Resources

Do I qualify?

Full USDA eligibility checklist — income, property, credit, and citizenship requirements.

Check eligibility →

Income limits by ZIP

Check the household income cap for your county — required for USDA construction loans.

Check limits →

Property eligibility map

Check whether your build site is in a USDA-eligible rural or suburban area.

Open map →

USDA loan program

See how USDA loans work — $0 down, property eligibility, income limits, and how USDA compares to FHA and conventional.

See the program →
Get your answer

Build in an Eligible Area with $0 Down — If You Qualify

USDA construction loans are available but not widely offered — working with a lender who regularly does them is the difference between a smooth process and a difficult one. The form above connects you with USDA-experienced lenders who can confirm your eligibility and builder qualifications.

Connect with a lender
Couple standing in front of the home they built using a USDA construction loan

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USDA Construction Loan FAQ

What is a USDA construction loan?

A USDA construction loan — formally the USDA Section 502 Guaranteed Loan for new construction — is a single-close construction-to-permanent loan. It funds the build during a construction period (typically up to 12 months), then automatically converts to a standard 30-year USDA mortgage when construction is complete. The main benefit is $0 down for eligible borrowers in USDA-eligible areas, with the same low guarantee fees as a USDA purchase loan.

What are the USDA construction loan eligibility requirements?

Borrower requirements are the same as a standard USDA purchase loan: the property must be in a USDA-eligible area, household income must be at or below 115% of the area median, the home must be your primary residence, and you must be a U.S. citizen or qualified alien. Credit requirements are typically 640+. Additionally, the builder must be licensed, insured, and approved by the lender — there is no national USDA builder registry. The lender vets the builder's qualifications and track record. Owner-build (acting as your own general contractor) is generally not permitted.

What is a one-time close loan?

A one-time close loan — also called a single-close or construction-to-permanent loan — combines the construction financing and the permanent mortgage into a single closing. One application, one approval, one set of closing costs, before construction begins. When the home is complete, the loan converts automatically to the permanent mortgage with no second appraisal and no second underwriting review. A two-close loan has two separate transactions: a construction loan you close first, then a refinance into a permanent mortgage when construction is done. Two-close means two sets of closing costs but sometimes lets you shop for a better permanent rate at conversion. USDA construction loans are always single-close; conventional and FHA lenders offer both depending on their program.

Can I buy land with a USDA construction loan?

Yes, in most cases. The land purchase can be rolled into the USDA construction loan, provided the land is in a USDA-eligible area and the total loan amount (land + construction) stays within USDA guidelines. If you already own the land, its equity may be counted toward the loan-to-value calculation. Discuss your specific situation with a USDA-approved lender.

How long does the construction phase last?

USDA typically allows up to 12 months for the construction period. During this time, funds are disbursed in draws as each phase of construction is completed and inspected. Interest-only payments are made on the outstanding draw balance. If construction is not complete within 12 months, the lender may need to request an extension from USDA.

What are the fees on a USDA construction loan?

USDA construction loans carry the same guarantee fees as purchase loans: a 1% upfront guarantee fee (typically financed into the loan) and a 0.35% annual fee on the outstanding balance. These fees apply to the permanent loan phase; construction-period fees vary by lender. There is no private mortgage insurance — the guarantee fee is the only ongoing mortgage insurance equivalent.

How is a USDA construction loan different from a conventional construction loan?

The key differences are: (1) $0 down for eligible USDA borrowers vs. typically 5–20% down for conventional; (2) USDA income limits apply — conventional has none; (3) property must be in a USDA-eligible area; (4) USDA requires builder approval and a fixed-price contract. Conventional construction loans often offer more flexibility on builder type and allow owner-build. USDA is the better deal if you qualify; conventional is broader but more expensive upfront.

What costs can be included in a USDA construction loan?

The loan can cover more than just the structure. Eligible costs include: the land purchase (if not already owned), all construction costs in the fixed-price builder contract, site preparation (grading, foundation plantings, seeding or sod, trees, walks, fences, driveways), and closing costs. Essential household equipment — appliances like ovens, ranges, refrigerators, washers, dryers, and heating and cooling equipment — can also be financed in, as long as they are included in the construction contract and conveyed with the dwelling at closing. If you want appliances covered, work them into the builder contract upfront; purchases made after closing are not eligible.

Does a new USDA construction home appraise for more than it costs to build?

Often, yes. The as-completed appraisal is based on comparable finished homes, not your construction contract. A $400,000 build on a $20,000 lot routinely appraises above the combined cost because the market values the finished house. That gap is equity at move-in. It is not guaranteed — the appraisal has to support it — but it is the usual construction outcome, not a special USDA product. USDA can finance the eligible project at $0 down.

Is a USDA construction loan hard to get?

USDA construction loans are less common than purchase loans because fewer USDA-approved lenders offer them, and the builder approval requirement adds a step. The underwriting is also more complex. Working with a lender who regularly does USDA construction loans matters — ask explicitly whether the lender does construction-to-permanent USDA loans before starting an application.