Get A USDA Loan To Help Build Your Dream Home

No down payment with USDA new construction.

USDA new constructionDid you know that you can build a house with a USDA loan; and you can include the cost of the land as well. The USDA loan is an all-in-one construction loan. If you dream of building a new home in a quite area at a reasonable price, then take a look at the USDA new construction home loan program.

The standard USDA loan guidelines with a USDA home loan are no different from the purchase of an existing home. The borrower must meet the USDA income limits and the property must be located in a designated rural area. The USDA provides a lookup tool (click on Single Family Housing Guaranteed) to help with the income and area requirements. Chances are, you will be financing the construction with a USDA Guarantee loan, not the USDA direct program.

What Is Covered by USDA Construction Loans?

  • Builder's insurance
  • Building costs
  • Buying or paying off the plot of land
  • Construction administrative fees
  • Design plans
  • Inspection fees
  • Landscaping costs
  • Permits
  • Utility and septic costs

Down Payment Requirement and Closing Costs

Most construction loans require some down payment, but the USDA construction loan does not require a down payment. The USDA construction loan is truly 100% financing.

Although, not required, proceeds from the sale of a home may be applied to construction loan to reduce the monthly loan payment or get under the debt to income ratio.

With a one-time close construction loan, closing costs are only paid once, and since a single closing is involved, there is only one required qualification and one appraisal.

Credit Score

Most lenders require a minimum credit score of 640 for a USDA new construction mortgage. Lenders often need a minimum of 12 to 24 months of blemish-free credit, no income gaps, no mortgage forbearance, and no late or missed rent or mortgage payments.

Interest Rates

New home built with a USDA loanThe USDA new construction loan program takes time. Loan approval involves not only the borrower qualification, but the construction package as well. Consequently, the interest rate is higher with USDA new construction loans than the interest rate on a resale home. The loan term is fixed for 30 years.

Contractor requirements include:

  • have a satisfactory credit history and be free of open judgments
  • must have a construction or contractor license.
  • A minimum of two years of experience constructing single-family houses is required.
  • must have a satisfactory credit history.
  • must pass a background check.
  • commercial liability insurance of at least $500,000 is required of the contractor.

Additional Requirements

  • You cannot have filed for bankruptcy within the past two years.
  • Minimum income and USDA geographic location must be satisfied.
  • The builder must issue a warranty on the new home.
  • Any money left after construction is complete must be transferred to the principle of your loan.
  • The USDA must approve the selected contractor(s), who must possess the necessary licenses and insurance, as well as a minimum of two years' experience constructing houses.
  • Your debt-to-income ratio (DTI) should not be more than 41%.

Ineligible properties

Second or vacation homes, investment properties are ineligible for a USDA new construction loan. Single family dwellings, manufactured homes, and eligible condominiums only.


In conclusion, a USDA loan can be a great option for those looking to build their dream home. The process is simple and there are many benefits to taking out a loan through the USDA. If you are interested in learning more, be sure to visit the USDA website or speak to a representative today.