Question 1

What is a USDA construction loan?

Accepted Answer

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.

Question 2

What are the USDA construction loan eligibility requirements?

Accepted Answer

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.

Question 3

What is a one-time close loan?

Accepted Answer

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.

Question 4

Can I buy land with a USDA construction loan?

Accepted Answer

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.

Question 5

How long does the construction phase last?

Accepted Answer

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.

Question 6

What are the fees on a USDA construction loan?

Accepted Answer

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.

Question 7

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

Accepted Answer

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.

Question 8

What costs can be included in a USDA construction loan?

Accepted Answer

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.

Question 9

Is a USDA construction loan hard to get?

Accepted Answer

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.

USDA Construction Loan — Build with $0 Down

USDA Construction Loan at a Glance

Connect with a USDA Construction Lender

How the USDA Construction-to-Permanent Loan Works

Application & lender approval

USDA approval & construction start

Construction period

Permanent loan conversion

Do You Qualify? The Three Requirements

1. Builder requirements

2. Borrower eligibility

3. Property requirements

More USDA Resources

Do I qualify?

Income limits by ZIP

Property eligibility map

USDA loan rates

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

USDA Construction Loan FAQ