Government-Backed Financing

FHA Construction Loan (One-Time Close): Steel Building Financing Guide

FHA-insured single-close construction-to-permanent loan. Low down payment (3.5%) and flexible credit requirements, but mortgage insurance is required for the life of the loan.

Challenging for Steel BuildingsBest for: First-time buyers with moderate credit who want low down payment and single closing

Min Down Payment

3.5%

Typical Rates

6.0–7.0%

Max Term

30 years

Min Credit Score

580

Program Overview

The FHA One-Time Close (OTC) construction-to-permanent loan combines the construction and permanent mortgage into a single loan closing. Insured by the Federal Housing Administration under HUD, it offers low down payments and flexible credit requirements for owner-occupied primary residences.

How It Works

The lender funds both the construction phase and permanent mortgage under one set of loan documents. During construction, the borrower pays interest only on funds disbursed. After construction, the loan automatically converts to a standard FHA mortgage — no second closing, no second set of closing costs.

Administered By

HUD / Federal Housing Administration (FHA)

Program Types

FHA One-Time Close (OTC)FHA 203(b) StandardFHA 203(k) Rehabilitation

Eligibility Requirements

Credit Score

580+ (3.5% down) or 500+ (10% down)

580+ for the standard 3.5% down payment. Scores 500–579 require 10% down. Below 500 is not eligible.

Down Payment

3.5% minimum

3.5% of the total project cost (land + construction) with a 580+ credit score. 10% required for 500–579 scores.

Income

No maximum limit

FHA does not impose income limits. Qualification is based on DTI ratios: 31% front-end and 43% back-end standard, but can go to 50%+ with compensating factors.

Occupancy

Primary residence only

Must be owner-occupied as the borrower's primary home. No investment properties or second homes.

Eligible Property Types

primary residence

Eligible Building Types

residentialbarndominium

Additional Requirements

DTI Ratio

31%/43% standard

Can exceed 43% with strong compensating factors such as residual income, significant cash reserves, or minimal payment shock.

Citizenship

U.S. citizen or permanent resident

Must have a valid Social Security number and legal residency status.

Builder Requirements

FHA-approved builder required

Builder must be licensed, insured, and registered with FHA. Some lenders maintain an approved builder list.

Step-by-Step Process

Pre-Approval

1–5 days

Get pre-approved with an FHA OTC lender. Confirm they offer the One-Time Close construction product — many FHA lenders only do purchase loans.

Ask specifically about steel-frame/barndominium experience

Verify they offer OTC, not just standard FHA

Select Builder & Plans

2–6 weeks

Choose an FHA-approved builder and finalize construction plans with detailed specifications and cost breakdown.

Never use the term 'barndominium' — say 'steel-frame custom home'

Builder must carry proper licensing and insurance

Submit Application

1–2 weeks

Complete the full loan application with construction plans, builder contract, land documentation, and all financial records.

Include detailed material specifications

Provide apples-to-apples comparable sales

Appraisal & Underwriting

3–6 weeks

FHA appraisal is ordered based on plans and specs. Underwriter reviews full file for FHA compliance.

FHA appraisal must meet Minimum Property Requirements (MPRs)

Prepare comparable sales package for the appraiser

Closing

1–2 weeks

Single closing for the entire loan — construction and permanent mortgage are finalized together.

Review all closing documents carefully

Understand your interest-only payment during construction

Construction Phase

6–12 months

Construction begins with funds disbursed through a draw schedule. Borrower pays interest-only on amounts drawn.

Stay in communication with builder and lender

Inspections required at each draw milestone

Conversion to Permanent

2–4 weeks

After construction completion, the loan automatically converts to a 30-year fixed FHA mortgage. No second closing needed.

Final inspection must confirm plans were followed

MIP continues for the life of the loan (if <10% down)

Financial Details

Down Payment

3.5% minimum with 580+ credit score. 10% required with 500–579 score.

Interest Rates

Approximately 6.0–7.0% as of 2026. Rate is locked at initial closing and applies to both construction and permanent phases.

Loan Terms

30-year fixed rate is standard. 15-year option also available.

Fees

1.75% upfront MIP (can be financed into the loan) + 0.55% annual MIP (paid monthly). The upfront MIP on a $300,000 loan is $5,250.

Insurance

Mortgage Insurance Premium (MIP) is required. Annual MIP of 0.55% applies for the life of the loan if down payment is less than 10%. If 10%+ down, MIP drops off after 11 years.

Closing Costs

2–6% of loan amount typical. Seller can contribute up to 6% toward buyer closing costs.

Loan Limits

$541,287 (floor) to $1,249,125 (ceiling) for single-family homes in 2026. Limits vary by county — check HUD's lookup tool.

Steel Building Considerations

FHA can technically insure steel-frame homes, but most FHA OTC lenders add their own restrictions (lender overlays) that exclude barndominiums and non-traditional construction. This makes FHA one of the more challenging options for steel buildings.

Common Challenges

Most FHA OTC lenders EXCLUDE barndominiums through lender overlays even though FHA itself does not prohibit them
Very few lenders offer FHA OTC for any type of steel-frame construction
FHA Minimum Property Requirements (MPRs) can conflict with barndominium-style designs
Appraisers may struggle to find comparable sales for steel-frame homes

Tips for Approval

Never use the term 'barndominium' with FHA lenders — use 'steel-frame custom home' instead
Focus on lenders in TX, TN, OK, and AL who have barndominium/steel experience
Design the home to look completely residential — no barn-style features externally
Ensure the home meets all FHA Minimum Property Requirements before applying
Get the builder to provide detailed specs showing code compliance

Lender Advice

Call multiple FHA lenders and ask: 'Do you offer One-Time Close construction loans for steel-framed custom homes?' If they say yes, follow up with: 'Have you closed a loan for a metal/steel-frame home before?' Experience matters enormously here.

Pros & Cons

Advantages

Low down payment (3.5%)
One of the lowest down payment options available for construction loans.
Flexible credit requirements
Minimum 580 score for 3.5% down — much lower than conventional's 680+ requirement.
Single closing saves money
One-Time Close means one set of closing costs instead of two separate closings.
Rate locked at closing
Your interest rate is locked when you close — no risk of rate increases during construction.
No income limits
Unlike USDA, FHA has no maximum income restriction.
No geographic restrictions
Available nationwide — no rural area requirement like USDA.
Gift funds allowed
Down payment can come from family gifts, grants, or down payment assistance programs.
Higher DTI allowed
DTI can exceed 43% with compensating factors — more flexible than many other programs.

Disadvantages

Lifetime mortgage insurance
MIP cannot be removed if you put less than 10% down — you pay it for the entire 30-year term.
Very challenging for steel buildings
Most FHA OTC lenders exclude barndominiums and non-traditional construction through overlays.
MIP adds significant cost
1.75% upfront + 0.55% annual MIP substantially increases the total cost of the loan.
Primary residence only
Cannot be used for investment properties, second homes, or commercial buildings.
Loan limits apply
FHA loan limits cap borrowing in most areas at $541,287 — may not cover larger builds.
Builder must be FHA-approved
Limits your choice of builders — not all contractors meet FHA requirements.
Strict property standards
FHA Minimum Property Requirements (MPRs) add restrictions on design and construction.
Longer processing times
FHA underwriting is typically slower than conventional, especially for construction.

Common Pitfalls

Using the word 'barndominium' on your application

FHA itself doesn't prohibit steel homes, but lenders add overlays that reject anything labeled as a barndominium.

How to avoid: Always describe your project as a 'steel-frame custom home' or 'custom-built residence with steel framing.' Avoid the term barndominium in all documentation.

Forgetting about lifetime MIP

Many borrowers don't realize that FHA MIP never goes away if you put less than 10% down. On a $300,000 loan, that's $1,650/year forever.

How to avoid: Plan to refinance into a conventional loan once you have 20% equity. This eliminates the MIP entirely. Factor refinancing costs into your long-term budget.

Choosing a lender without OTC construction experience

Many FHA lenders only do purchase/refinance — they don't offer the One-Time Close construction product at all.

How to avoid: Before applying, confirm the lender specifically offers FHA One-Time Close construction loans AND has experience with steel-frame homes.

Exceeding FHA loan limits

Steel buildings with custom finishes can quickly exceed the FHA loan limit for your county.

How to avoid: Check your county's FHA loan limit at entp.hud.gov/idapp/html/hicostlook.cfm before finalizing plans. Scale your build to stay within limits or consider conventional/portfolio lending.

Required Documents

Government-issued photo IDRequired

Valid driver's license, passport, or state ID for all borrowers

Income documentationRequired

Pay stubs (30 days), W-2s (2 years), tax returns (2 years)

Bank statementsRequired

Most recent 2 months of all bank and investment accounts

Employment verificationRequired

Employer contact information and VOE letter

Construction plans & specificationsRequired

Complete architectural plans meeting FHA MPRs with engineer stamp

Builder contract & credentialsRequired

Signed contract with FHA-approved builder, license, insurance, and references

Land documentationRequired

Deed if owned, or purchase agreement if buying. Survey and legal description required.

Cost breakdownRequired

Detailed line-item construction cost estimate from the builder

Credit authorizationRequired

Written authorization for credit report pull

Gift letter (if applicable)Optional

Letter from gift donor confirming funds are a gift and not a loan

Frequently Asked Questions

Can I get an FHA loan for a barndominium?

Technically yes — FHA does not prohibit steel-frame construction. However, most FHA lenders add their own restrictions (lender overlays) that exclude barndominiums. Your success depends on finding a lender experienced with steel-frame homes. Always describe your project as a 'steel-frame custom home,' not a 'barndominium.'

What is the FHA One-Time Close loan?

The OTC combines construction financing and permanent mortgage into a single loan with one closing. You close once, pay one set of closing costs, and the loan automatically converts from construction to permanent after building is complete.

How much is FHA mortgage insurance?

FHA charges two types of MIP: an upfront premium of 1.75% of the loan amount (can be financed) and an annual premium of 0.55% (paid monthly). On a $300,000 loan, that's $5,250 upfront and $137.50/month ongoing.

Can I remove FHA mortgage insurance?

Only if you put 10% or more down — in that case, MIP drops off after 11 years. If your down payment is less than 10%, MIP stays for the life of the 30-year loan. To remove it, you would need to refinance into a conventional loan.

What are FHA loan limits?

For 2026, FHA loan limits range from $541,287 (floor in most counties) to $1,249,125 (ceiling in high-cost areas). Check your specific county at entp.hud.gov/idapp/html/hicostlook.cfm.

What credit score do I need for FHA?

580+ for the standard 3.5% down payment. Scores 500–579 require 10% down. Below 500 does not qualify. Most lenders prefer 620+ even though FHA's minimum is 580.

Can the seller pay my closing costs?

Yes, sellers can contribute up to 6% of the sale price toward buyer closing costs. This can significantly reduce out-of-pocket expenses.

How long does FHA construction take?

The application and approval process typically takes 30–60 days. Construction then takes 6–12 months. Total timeline from application to move-in is typically 8–14 months.

Can I be my own builder with FHA?

Generally no — FHA requires a licensed, insured contractor as the general builder. Owner-builder arrangements are not permitted under most FHA OTC programs.

What are FHA Minimum Property Requirements?

FHA MPRs ensure the property is safe, sound, and secure. They require adequate roofing, proper electrical and plumbing, working heating, safe water supply, and structural integrity. Steel-frame homes can meet all MPRs with proper engineering.

Official Sources & Resources

Verify the information above directly from these official sources. Rates, terms, and eligibility requirements change frequently — always confirm with the lender or program administrator.

FHA Single Family Housing ProgramsOfficial HUD/FHA program overview

FHA Loan Limits LookupCheck your county's FHA loan limits

CFPB Mortgage Insurance GuideUnderstanding mortgage insurance requirements

FHA Loan RequirementsDetailed eligibility and documentation requirements

NerdWallet FHA GuideConsumer-friendly FHA loan overview

Bankrate FHA Construction LoansFHA construction loan comparison and rates

HUD FHA Programs ReferenceOfficial HUD program reference document

Fannie Mae Underwriting GuideConventional underwriting comparison reference

In This Guide

Disclaimer: This guide is for informational purposes only and does not constitute financial, legal, or professional advice. Interest rates, loan terms, eligibility requirements, and program details change frequently. Always verify current information with the lender or program administrator before making financial decisions. Homestead Steel Structures & Design is not a lender, financial advisor, or mortgage broker. Last updated February 2026.

Ready to Finance Your Steel Building?

We help connect you with lenders experienced in steel building and barndominium financing — so you can focus on your build, not the paperwork.

Get Your Free Quote Explore Building Series

Government-Backed Financing

FHA Construction Loan (One-Time Close): Steel Building Financing Guide

FHA-insured single-close construction-to-permanent loan. Low down payment (3.5%) and flexible credit requirements, but mortgage insurance is required for the life of the loan.

Challenging for Steel BuildingsBest for: First-time buyers with moderate credit who want low down payment and single closing

Min Down Payment

3.5%

Typical Rates

6.0–7.0%

Max Term

30 years

Min Credit Score

580

Program Overview

How It Works

Administered By

HUD / Federal Housing Administration (FHA)

Program Types

FHA One-Time Close (OTC)FHA 203(b) StandardFHA 203(k) Rehabilitation

Eligibility Requirements

Credit Score

580+ (3.5% down) or 500+ (10% down)

580+ for the standard 3.5% down payment. Scores 500–579 require 10% down. Below 500 is not eligible.

Down Payment

3.5% minimum

3.5% of the total project cost (land + construction) with a 580+ credit score. 10% required for 500–579 scores.

Income

No maximum limit

FHA does not impose income limits. Qualification is based on DTI ratios: 31% front-end and 43% back-end standard, but can go to 50%+ with compensating factors.

Occupancy

Primary residence only

Must be owner-occupied as the borrower's primary home. No investment properties or second homes.

Eligible Property Types

primary residence

Eligible Building Types

residentialbarndominium

Additional Requirements

DTI Ratio

31%/43% standard

Can exceed 43% with strong compensating factors such as residual income, significant cash reserves, or minimal payment shock.

Citizenship

U.S. citizen or permanent resident

Must have a valid Social Security number and legal residency status.

Builder Requirements

FHA-approved builder required

Builder must be licensed, insured, and registered with FHA. Some lenders maintain an approved builder list.

Step-by-Step Process

Pre-Approval

1–5 days

Get pre-approved with an FHA OTC lender. Confirm they offer the One-Time Close construction product — many FHA lenders only do purchase loans.

Ask specifically about steel-frame/barndominium experience

Verify they offer OTC, not just standard FHA

Select Builder & Plans

2–6 weeks

Choose an FHA-approved builder and finalize construction plans with detailed specifications and cost breakdown.

Never use the term 'barndominium' — say 'steel-frame custom home'

Builder must carry proper licensing and insurance

Submit Application

1–2 weeks

Complete the full loan application with construction plans, builder contract, land documentation, and all financial records.

Include detailed material specifications

Provide apples-to-apples comparable sales

Appraisal & Underwriting

3–6 weeks

FHA appraisal is ordered based on plans and specs. Underwriter reviews full file for FHA compliance.

FHA appraisal must meet Minimum Property Requirements (MPRs)

Prepare comparable sales package for the appraiser

Closing

1–2 weeks

Single closing for the entire loan — construction and permanent mortgage are finalized together.

Review all closing documents carefully

Understand your interest-only payment during construction

Construction Phase

6–12 months

Construction begins with funds disbursed through a draw schedule. Borrower pays interest-only on amounts drawn.

Stay in communication with builder and lender

Inspections required at each draw milestone

Conversion to Permanent

2–4 weeks

After construction completion, the loan automatically converts to a 30-year fixed FHA mortgage. No second closing needed.

Final inspection must confirm plans were followed

MIP continues for the life of the loan (if <10% down)

Financial Details

Down Payment

3.5% minimum with 580+ credit score. 10% required with 500–579 score.

Interest Rates

Approximately 6.0–7.0% as of 2026. Rate is locked at initial closing and applies to both construction and permanent phases.

Loan Terms

30-year fixed rate is standard. 15-year option also available.

Fees

1.75% upfront MIP (can be financed into the loan) + 0.55% annual MIP (paid monthly). The upfront MIP on a $300,000 loan is $5,250.

Insurance

Mortgage Insurance Premium (MIP) is required. Annual MIP of 0.55% applies for the life of the loan if down payment is less than 10%. If 10%+ down, MIP drops off after 11 years.

Closing Costs

2–6% of loan amount typical. Seller can contribute up to 6% toward buyer closing costs.

Loan Limits

$541,287 (floor) to $1,249,125 (ceiling) for single-family homes in 2026. Limits vary by county — check HUD's lookup tool.

Steel Building Considerations

Common Challenges

Most FHA OTC lenders EXCLUDE barndominiums through lender overlays even though FHA itself does not prohibit them
Very few lenders offer FHA OTC for any type of steel-frame construction
FHA Minimum Property Requirements (MPRs) can conflict with barndominium-style designs
Appraisers may struggle to find comparable sales for steel-frame homes

Tips for Approval

Never use the term 'barndominium' with FHA lenders — use 'steel-frame custom home' instead
Focus on lenders in TX, TN, OK, and AL who have barndominium/steel experience
Design the home to look completely residential — no barn-style features externally
Ensure the home meets all FHA Minimum Property Requirements before applying
Get the builder to provide detailed specs showing code compliance

Lender Advice

Pros & Cons

Advantages

Low down payment (3.5%)
One of the lowest down payment options available for construction loans.
Flexible credit requirements
Minimum 580 score for 3.5% down — much lower than conventional's 680+ requirement.
Single closing saves money
One-Time Close means one set of closing costs instead of two separate closings.
Rate locked at closing
Your interest rate is locked when you close — no risk of rate increases during construction.
No income limits
Unlike USDA, FHA has no maximum income restriction.
No geographic restrictions
Available nationwide — no rural area requirement like USDA.
Gift funds allowed
Down payment can come from family gifts, grants, or down payment assistance programs.
Higher DTI allowed
DTI can exceed 43% with compensating factors — more flexible than many other programs.

Disadvantages

Lifetime mortgage insurance
MIP cannot be removed if you put less than 10% down — you pay it for the entire 30-year term.
Very challenging for steel buildings
Most FHA OTC lenders exclude barndominiums and non-traditional construction through overlays.
MIP adds significant cost
1.75% upfront + 0.55% annual MIP substantially increases the total cost of the loan.
Primary residence only
Cannot be used for investment properties, second homes, or commercial buildings.
Loan limits apply
FHA loan limits cap borrowing in most areas at $541,287 — may not cover larger builds.
Builder must be FHA-approved
Limits your choice of builders — not all contractors meet FHA requirements.
Strict property standards
FHA Minimum Property Requirements (MPRs) add restrictions on design and construction.
Longer processing times
FHA underwriting is typically slower than conventional, especially for construction.

Common Pitfalls

Using the word 'barndominium' on your application

FHA itself doesn't prohibit steel homes, but lenders add overlays that reject anything labeled as a barndominium.

How to avoid: Always describe your project as a 'steel-frame custom home' or 'custom-built residence with steel framing.' Avoid the term barndominium in all documentation.

Forgetting about lifetime MIP

Many borrowers don't realize that FHA MIP never goes away if you put less than 10% down. On a $300,000 loan, that's $1,650/year forever.

How to avoid: Plan to refinance into a conventional loan once you have 20% equity. This eliminates the MIP entirely. Factor refinancing costs into your long-term budget.

Choosing a lender without OTC construction experience

Many FHA lenders only do purchase/refinance — they don't offer the One-Time Close construction product at all.

How to avoid: Before applying, confirm the lender specifically offers FHA One-Time Close construction loans AND has experience with steel-frame homes.

Exceeding FHA loan limits

Steel buildings with custom finishes can quickly exceed the FHA loan limit for your county.

How to avoid: Check your county's FHA loan limit at entp.hud.gov/idapp/html/hicostlook.cfm before finalizing plans. Scale your build to stay within limits or consider conventional/portfolio lending.

Required Documents

Government-issued photo IDRequired

Valid driver's license, passport, or state ID for all borrowers

Income documentationRequired

Pay stubs (30 days), W-2s (2 years), tax returns (2 years)

Bank statementsRequired

Most recent 2 months of all bank and investment accounts

Employment verificationRequired

Employer contact information and VOE letter

Construction plans & specificationsRequired

Complete architectural plans meeting FHA MPRs with engineer stamp

Builder contract & credentialsRequired

Signed contract with FHA-approved builder, license, insurance, and references

Land documentationRequired

Deed if owned, or purchase agreement if buying. Survey and legal description required.

Cost breakdownRequired

Detailed line-item construction cost estimate from the builder

Credit authorizationRequired

Written authorization for credit report pull

Gift letter (if applicable)Optional

Letter from gift donor confirming funds are a gift and not a loan

Frequently Asked Questions

Can I get an FHA loan for a barndominium?

What is the FHA One-Time Close loan?

How much is FHA mortgage insurance?

Can I remove FHA mortgage insurance?

What are FHA loan limits?

For 2026, FHA loan limits range from $541,287 (floor in most counties) to $1,249,125 (ceiling in high-cost areas). Check your specific county at entp.hud.gov/idapp/html/hicostlook.cfm.

What credit score do I need for FHA?

580+ for the standard 3.5% down payment. Scores 500–579 require 10% down. Below 500 does not qualify. Most lenders prefer 620+ even though FHA's minimum is 580.

Can the seller pay my closing costs?

Yes, sellers can contribute up to 6% of the sale price toward buyer closing costs. This can significantly reduce out-of-pocket expenses.

How long does FHA construction take?

The application and approval process typically takes 30–60 days. Construction then takes 6–12 months. Total timeline from application to move-in is typically 8–14 months.

Can I be my own builder with FHA?

Generally no — FHA requires a licensed, insured contractor as the general builder. Owner-builder arrangements are not permitted under most FHA OTC programs.

What are FHA Minimum Property Requirements?

Official Sources & Resources

Verify the information above directly from these official sources. Rates, terms, and eligibility requirements change frequently — always confirm with the lender or program administrator.

FHA Single Family Housing ProgramsOfficial HUD/FHA program overview

FHA Loan Limits LookupCheck your county's FHA loan limits

CFPB Mortgage Insurance GuideUnderstanding mortgage insurance requirements

FHA Loan RequirementsDetailed eligibility and documentation requirements

NerdWallet FHA GuideConsumer-friendly FHA loan overview

Bankrate FHA Construction LoansFHA construction loan comparison and rates

HUD FHA Programs ReferenceOfficial HUD program reference document

Fannie Mae Underwriting GuideConventional underwriting comparison reference

In This Guide

Ready to Finance Your Steel Building?

We help connect you with lenders experienced in steel building and barndominium financing — so you can focus on your build, not the paperwork.

Get Your Free Quote Explore Building Series