For most Valley families the choice comes down to four programs. VA is usually strongest for eligible veterans: zero down and no monthly mortgage insurance. USDA offers zero down on eligible rural lots, within income limits. FHA needs 3.5% down with a 580 score, but since May 2025 only citizens and permanent residents qualify. Conventional rewards strong credit, closes in a single loan, and still accepts many non permanent residents.
We are a builder, not a lender. Nothing here is a loan offer or financial advice, programs change, and only a lender can tell you what you qualify for. What we can do is explain how each program works with a construction project and introduce you to local lenders who close construction loans regularly.
The four programs at a glance
| FHA | VA | Conventional | USDA Guaranteed | |
|---|---|---|---|---|
| Down payment | 3.5% with a 580+ score; 10% from 500 to 579 | $0 | From 3 to 5% on some single close programs; many construction lenders ask 10 to 20% | $0 |
| Credit | 580 for 3.5% down; lenders often set higher floors for construction | No VA minimum; lenders set their own | Lenders typically look for 620+; best pricing around 740+ | Lenders typically look for 640 |
| Mortgage insurance | 1.75% upfront plus 0.55% a year on a typical loan | None; a one time funding fee unless exempt | Private mortgage insurance until 20% equity | Upfront and annual guarantee fees |
| Who qualifies | U.S. citizens and lawful permanent residents | Eligible veterans, service members and some surviving spouses | Citizens, permanent residents and many non permanent residents | Income limits, eligible rural area, citizens and qualified aliens |
| One time close | Yes | Yes, where the lender offers it | Yes | Yes |
A fifth option, the two time close, is less a program than a structure: a short term construction loan, then a separate permanent mortgage. More on that below.
What changed in 2025 and 2026?
- FHA stopped insuring loans to non permanent residents. For case numbers assigned on or after May 25, 2025, only U.S. citizens and lawful permanent residents are eligible, following a March 2025 HUD mortgagee letter (NAR summary).
- USDA tightened the same way. On March 18, 2025, USDA ended a temporary authority for certain non citizens; borrowers must be U.S. citizens, non citizen nationals or qualified aliens (USDA bulletin).
- Conventional loans still accept non permanent residents. Fannie Mae’s selling guide continues to treat lawful permanent and non permanent residents on the same terms as citizens, so for many families conventional is now the path.
- No more automatic 620 floor at Fannie Mae. For loan files created on or after November 16, 2025, Fannie Mae’s automated underwriting stopped applying a minimum credit score (Fannie Mae). Most lenders still set their own minimum, often 620. Lenders can also now use VantageScore 4.0, which FHFA opened to all approved lenders in September 2026 (FHFA).
- Higher limits. The 2026 conforming loan limit for a one unit home is $832,750 (FHFA). In Hidalgo, Cameron, Starr and Jim Wells counties, the 2026 FHA limit for a one unit home is the national floor, $541,287.
- VA construction got simpler for builders. Since March 31, 2025, VA no longer requires a VA issued builder identification number on new construction (VA circulars).
- Rates turned up. Freddie Mac’s 30 year average fell to 5.98% in February 2026, then climbed to 7.03% by September 24, 2026. Our guide to construction loan rate locks covers what that means for a build.
FHA: for first time builders with modest savings
FHA allows 3.5% down with a credit score of 580 or higher, and 10% down with a score from 500 to 579, under HUD’s rules. In practice, lenders often set a higher floor for construction loans, so ask.
- One time close. FHA construction to permanent loans close once and convert to a standard FHA mortgage when the home is finished.
- Land counts. If you already own your lot, its value counts toward the project’s acquisition cost, which can cover part or all of the down payment.
- Mortgage insurance. A typical 30 year FHA loan carries 1.75% upfront, usually financed, plus 0.55% a year.
- Eligibility. U.S. citizens and lawful permanent residents only, since May 2025. The home must meet FHA property standards.
VA: usually the strongest option for eligible veterans
VA lists building a new home among the uses of its purchase loan. For eligible veterans, service members and some surviving spouses:
- $0 down and no monthly mortgage insurance.
- No loan limit with full entitlement.
- A one time funding fee, usually financed: 2.15% on a first use with less than 5% down, 3.3% on a later use, and lower with 5% or 10% down. Veterans who receive VA disability compensation are generally exempt (VA funding fee table).
- Certificate of Eligibility required, which your lender can help you pull.
The catch is availability: not every lender offers VA construction financing. We work with local lenders who do.
Conventional: for strong credit, and for many non permanent residents
Conventional construction loans come in two shapes. Fannie Mae’s single close construction to permanent program allows up to 97% loan to value on a one unit primary residence with a fixed rate, with first time buyer rules above 95%. If you already own the lot, the loan to value is measured against the appraised value of the finished home, so your land equity works as down payment. The construction period can run up to 18 months in total.
Many local banks instead offer their own construction loans, often asking 10 to 20% down, then a separate permanent mortgage. Either way, private mortgage insurance applies below 20% equity and comes off once you reach it.
USDA: zero down on eligible rural lots
USDA’s guaranteed loan offers zero down in eligible rural areas, including much of Starr County and rural parts of Hidalgo and Cameron, for households within income limits. For 2026, Hidalgo County uses the program’s standard limit of $122,800 for households of one to four and $162,100 for five to eight. There is a single close construction option with specific lender and builder requirements. Our USDA guide covers all of it.
One time close vs. two time close
| One time close | Two time close | |
|---|---|---|
| Closings | One | Two: construction loan, then permanent mortgage |
| Closing costs | Paid once; typically $2,000 to $6,000 less in total | Paid twice |
| Interest rate | Usually locked at the start | Permanent rate set at the second closing |
| Qualifying | Once | Twice, so your finances must hold through the build |
| Best for | Most families who want a predictable payment | Borrowers who expect a lower rate later or need a specific permanent program |
Most families we build for use a one time close. A two time close can make sense in one Texas case worth knowing: TDHCA’s My First Texas Home program, which pairs FHA, VA or USDA loans with 2% to 5% down payment assistance for eligible buyers, can refinance a construction loan of up to two years into its permanent loan (TDHCA lender guide). Its 2026 income limits for the Valley are $101,500 for households of one or two and $116,725 for three or more, higher in targeted areas (TDHCA limits).
How much cash do I need?
Rough examples on a $250,000 build, before land. Closing costs typically run 2 to 5% of the loan, and lenders often want two to six months of reserves:
| Program | Down payment | Plus |
|---|---|---|
| FHA | $8,750 (3.5%) | Closing costs and reserves |
| VA | $0 | Closing costs; funding fee usually financed |
| USDA | $0 | Closing costs; guarantee fee usually financed |
| Conventional | $7,500 to $50,000 (3% to 20%) | Closing costs, reserves and mortgage insurance below 20% |
If you own your land free and clear, its appraised value may cover some or all of the down payment. Land that still has a loan on it is handled differently, so bring the payoff statement to your first lender meeting.
How do draws work during construction?
The lender releases money in stages, called draws, as each phase passes inspection. During construction you typically pay interest only on what has been drawn; at completion, the CFPB explains, the payment switches to principal and interest. Nadia Benavides, our transaction coordinator, prepares the draw requests and lender documentation so funding does not stall. Our financing guidance page shows the draw schedule phase by phase.
Frequently asked questions
Can my land equity count as my down payment?
Often, yes. FHA counts land you already own in the project’s acquisition cost, and Fannie Mae’s single close program measures the loan against the finished value of land and house together. The lender’s appraisal decides the number.
What credit score do I need?
FHA: 580 for 3.5% down, or 500 to 579 with 10% down. VA: no official minimum, lenders set their own. Conventional: lenders typically look for 620 or more. USDA: lenders typically look for 640. Construction lenders may ask for more than the program minimum.
I am not a permanent resident. Can I still build?
Possibly, but not with FHA or USDA since 2025. Conventional loans that follow Fannie Mae’s guidelines still accept non permanent residents with documented lawful status. A lender will confirm what documents you need.
Can I use a VA loan to build in the Rio Grande Valley?
Yes. You need your Certificate of Eligibility, the home must be your primary residence and meet VA minimum property requirements, and the lender must offer VA construction financing. We introduce you to one who does.
How does South Texas Builders help with the loan?
We do not originate loans. We make the lender introduction, tell you which documents to bring, prepare a budget and draw schedule your lender can underwrite, and handle draw requests during the build. Blueprints are free with the purchase of your home, and we file all permits except windstorm where it applies.
Ready to find your number? Get prequalified, usually in one to three business days, or schedule a consultation to talk through which program fits your family and your lot.
