6 min read May 14, 2024

USDA Construction Loan: Learn the Steps to Get One in 2024

Edited By

Carol Coutinho

Edited By

Carol Coutinho

Editor, Houzeo

Carol C. is a versatile editor, expertly refining real estate content with precision and creativity. When not exploring market trends, she is immersed in the enthralling world of the theatre.

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In January 2024, the interest rate for USDA construction loans is 5.125%. At this rate, more people will be able to finance the construction, repair, or renovation of their homes.

The USDA construction loan’s main aim is to provide rural development and improve the quality of life for residents of rural communities. However, the property should be located in a USDA-approved area.

🚀 Features of USDA Construction Loan

  • USDA loan for building a house offers zero downpayment and low interest rates making it affordable for moderate-income groups.
  • Unlike a traditional construction loan, which converts to a separate mortgage upon completion, a USDA construction loan combines both phases into a single loan.
  • A USDA construction loan allows the purchase of both land and home. The land must be in a USDA-approved area.

What Is a USDA Construction Loan?

A USDA Construction loan is a mortgage backed by the United States Department of Agriculture. It allows you to finance both the purchase of land and the construction of your new home with a single loan.

USDA construction loan provides many features to borrowers, including flexible credit requirements and no down payment option.

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USDA Construction Loan Requirements

There are certain requirements you must meet to be eligible for a USDA construction loan.

Borrower Requirements

  • Income Eligibility: You must meet specific income limits that is $110,650, set by the USDA rural construction loan standards. You haver to ensure you house is located in rural area.
  • Creditworthiness: Lenders will assess your credit score credibility that should be minimum 640, having a good credit score improves your chances of loan approval.
  • Employment Eligibility: You need to have a stable income source and employment credibility to get this loan.
  • Debt-to-Income Ratio: Your debt-to-income ratio is a critical factor in loan approval. However, lenders prefer a low ratio, that is 41%.
  • Permanent Residency: You must be a U.S. citizen.

Property Requirements

  • Region: The property’s location should be within USDA approved location.
  • Appraisal: A qualified appraiser will assess the property’s value and ensure it meets the USDA’s guidelines.
  • Occupancy: It should be used as primary residence and not as an investment or rental property.

How to Get a USDA Construction Loan?

Here are the steps you need to take to apply for a USDA home building loan:

Step 1: Check if You Are Eligible

To get a USDA home construction loan, check if you are eligible for this loan according to the USDA house loans guidelines. However, make sure you have a credit score of minimum 640 and your DTI is 41%.

Step 2: Find a USDA Approved Lender

Not all lenders offer USDA loans, so you’ll need to find one who is authorized to do so. Search for eligible lenders online or reach out to near by banks or credit unions. However, the lender needs to part of USDA Loan program as well.

Step 3: Submit your Application

You will need to submit documents such as proof of income, employment history, credit score report, and bank statement to the your approved lender.

Step 4: Close Loan

During the closing, you’ll sign the final loan documents and establish an escrow account where your loan funds are held. The funds are released in stages based on the completion of specific construction. 

Once construction is complete, a final inspection will be conducted and after successful inspection and approval. If the project costs less than expected, it will be reduced to the principal amount.

Step 5: Lastly Make Payments

Once the construction is complete and loan amount is fully disbursed you can start making regular mortgage payments to the lender.

How Do USDA Construction Loans Work?

To build a rural home, you can apply for a USDA land and construction loan through an approved lender. Your credit score, bank statements, and employment history must be approved. The lender releases funds as construction progresses, with no down payment required and favorable interest rates and terms.

Pros and Cons of USDA Construction Loan

The pros and cons are as follows:


  • No Down Payment: USDA construction loans offer no down payment options.
  • No PMI: USDA construction loans do not require you to pay for Private Mortgage Insurance (PMI).
  • Single-loan closing: You only need to go through one loan closing process, saving you time and money.


  • Rural Based: USDA construction loans are only available in rural areas.
  • High Interest Rate : Rates can fluctuate based on market conditions, generally are higher.
  • Limited Funds: You cannot borrow a large amount as this loan has limited funding.
  • Income restrictions: Your household income must fall below a certain threshold set by the USDA.


  • FHA Construction Loan: Low down payment and flexible credit score requirements.
  • Conventional Construction Loan: Requires a higher down payment and good credit score.
  • Home Equity Loan: Uses equity in an existing home to finance construction.
  • Personal Loan: Good for small amounts of money, but with higher interest rates.

The Bottom Line

For those who wants to build home with USDA loan or renovating homes in rural areas, USDA construction loans are a good option. This loan provides DTI of 41% and credit score of minimum 640. These loan requirements also includes location and income limits.

If you fail to fulfill the requirements of the USDA construction loan, you can opt for other alternatives.

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Frequently Asked Questions

What are USDA construction loan requirements?

To get a USDA construction loan there are few requirements. These requirements are for both borrower and property. Apart from this, the property must also be located in a designated rural area.

Who qualifies for USDA construction loan?

To qualify for a USDA construction loan, you must have credit score of minimum 640, steady income, and US citizenship.

What is USDA single close construction loan?

The USDA single close construction loan is a government-backed loan that allows borrowers to build a new home. It covers site preparation, construction, materials, labor, and permits, as well as the costs of financing the project, including interest and fees. It means you don't have to take two separate loans, this covers it all in one.

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