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
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.
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.
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.
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.
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 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
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
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.
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%.
Finance at $0 Down
- Total Project
- $420,000
- Required Down Payment
- $0
In an eligible area USDA can finance 100% of land plus construction.
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.
Income limits by ZIP
Check the household income cap for your county — required for USDA construction loans.
Property eligibility map
Check whether your build site is in a USDA-eligible rural or suburban area.
USDA loan program
See how USDA loans work — $0 down, property eligibility, income limits, and how USDA compares to FHA and conventional.
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.
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