Can You Build a House With a USDA Loan? 

Exploring New Construction Possibilities in Rural Areas with USDA Loans

A house under construction that is financed with a USDA construction loanEmbarking on the journey of building a house with a USDA loan opens up exciting new possibilities for construction in rural areas. This type of loan for construction provides aspiring homeowners with a unique avenue to turn their dream homes into a reality.

The process involves navigating the intricacies of USDA construction loan requirements, eligibility criteria, and credit prerequisites. Prospective applicants might inquire about the suitability of a USDA loan for new construction and delve into the details of collaborating with USDA-approved contractors.

Understanding how a USDA construction loan works, from the initial application to the completion of the home-building process, is crucial for those considering this financing option. As individuals aspire to build a home in rural settings, exploring the nuances of a USDA construction loan becomes essential to turning their homeownership dreams into reality.

Overview of USDA Construction Loans

The U.S. Department of Agriculture's Single Family Housing Guaranteed Loan Program offers construction-to-permanent financing options tailored for custom-built homes in rural locations.

These USDA construction loans are specifically crafted to aid individuals in realizing their dream homes in rural areas where traditional financing options may be scarce. They provide aspiring homeowners with unique opportunities to bring their vision to life and create a personalized space that meets their needs.

A significant advantage of USDA Construction Loans is their consolidation of the construction and permanent financing phases into a single, convenient package. This alleviates concerns for borrowers regarding securing separate loans or managing multiple lenders.

Key Features of USDA Construction Loans

  • 100% financing for all construction costs and land
  • There are no ARMs; only a permanent fixed rate is available.
  • Phase dispersals are based on the completion of home sections.
  • Designed for stick-built and modular construction

USDA construction loans provide an affordable solution for borrowers lacking down payment funds who want to build on their land.

Eligibility Requirements for USDA Construction Loans

To qualify for a USDA construction loan, borrowers must meet standard program requirements:

  1. Property Location: The property must be in a designated rural area defined by the USDA.
  2. Borrower Eligibility: Borrowers must meet income eligibility requirements set by the USDA based on the property's location and household size.
  3. Credit Score: While there is no minimum credit score requirement, borrowers must have a credit history demonstrating their ability to repay the loan.
  4. Construction Plans: Borrowers must provide detailed construction plans and specifications for the proposed home.
  5. Builder Qualifications: To participate in the program, builders must be licensed, insured, and approved by the USDA.
  6. Permanent Foundation: The home must be constructed on a permanent foundation that meets USDA standards.
  7. Guarantees and Fees: Borrowers may be required to pay upfront guarantee fees and annual fees as mortgage insurance.
  8. Documentation: Borrowers must provide all necessary documentation, including proof of income, assets, and liabilities, to verify their eligibility for the loan.

Manufactured Housing and USDA Construction Loans

An alternative to stick-built construction is using a USDA loan to finance placing a new manufactured or modular home on your rural property.

The home must:

  • Be built to HUD code standards.
  • Have the chassis and hitch removed.
  • Be attached to a permanent foundation.

This allows you to buy an affordable factory-built home and install it on your land as collateral.

How Do USDA Construction Loans Work?

USDA construction loans provide periodic disbursements of the loan proceeds at specified project milestones:

  • Initial funds released at loan closing to purchase land
  • Once the foundation is complete, we will remove the second installment.
  • Subsequent disbursements are made as home sections are completed (framing, roofing, plumbing, etc.).
  • Final funds are released at the end of the construction period when the home is complete.

A designated USDA inspector monitors progress before each scheduled release to ensure proper completion.

There Are Critical Steps in the USDA Construction Loan Process

Follow these key steps when using a USDA-backed loan to finance construction:

  • Find and purchase suitable rural properties.
  • Select a home plan and a licensed builder or manufacturer.
  • Have the land surveyed and apply for all building permits.
  • Get multiple bids for all aspects: materials, labor, and fees.
  • Provide detailed cost breakdowns and budgets to the lender.
  • Submit construction blueprints for review.
  • Close on the USDA loan and initial installment.
  • Make drawings as home sections pass inspections.
  • Complete landscaping and final touches.
  • Have a final inspection and convert to permanent financing.

Careful planning and attention to detail ensure your build stays on time and within budget.

Pros and Cons of Using USDA Construction Loans


  • 100% financing means no down payment requirement.
  • Get a new home tailored to your specifications.
  • Lower monthly costs than comparable existing homes.
  • The mortgage rate is locked in for the entire construction period.
  • All-in-one land purchase and construction financing.


  • Very specific about property location and home eligibility.
  • It is a more complex process than buying an existing home.
  • There is no flexibility on loan terms; fixed rate only.
  • Additional inspections may add time to the schedule.
  • Any cost overruns fall on the borrower.

Is a USDA Construction Loan Right for You?

If you dream of building your own home but lack down payment funds, a USDA construction loan may be the right fit if:

  • You own suitable rural land to build on.
  • You meet income and credit requirements.
  • You have documented construction plans and are a reliable builder.
  • You have the flexibility to handle potential timing delays.
  • You can cover any cost overruns exceeding the loan.

This specialized financing helps turn the aspiration of custom-built homeownership into reality.

Financing Your Dream Home with USDA-Manufactured Home Loans

Are you considering purchasing a new manufactured home in a rural setting? The USDA Manufactured Home Loan Program, as part of rural development initiatives, can help turn that dream into reality.

Your mobile home must meet certain requirements set by the USDA to be eligible for a special program that helps you buy a home. This program is designed to offer reasonable interest rates and adaptable loan amounts to help you buy a manufactured home. But keep in mind that there are some rules and conditions to follow.

Real estate, not personal property, must be the property's classification, and some types, like double-wide homes, qualify. Additionally, there are guarantees and annual fees that serve as mortgage insurance.

Understanding these factors can facilitate a smooth and affordable path to homeownership if you're seeking financing for a manufactured home through USDA.


In conclusion, you can use a USDA loan to build a house in rural areas, offering benefits like low interest rates and no down payment. It's an excellent opportunity for people who want to build homes, but checking if you meet the requirements is crucial. Explore loan options, talk to experts, and make your dream of building a home come true.

SOURCE: USDA Combination Construction-to-permanent