The same shape, three rulebooks
All three programs do the same thing. One closing before construction starts, the land paid for out of the proceeds, the balance held in escrow and released in stages, an inspection ahead of each release, and a conversion to permanent financing at the end. Where they part company is in what the builder has to be, what can be financed, and how long you have. Three rulebooks agreeing on the shape and arguing about the detail is the normal condition of a build in this county.
One thing to know before you read on: true VA construction loans are thinly written. Plenty of veterans end up building on a local bank’s construction loan and refinancing into a VA loan once the certificate of occupancy is in hand. Say early that VA entitlement is in play, and the question of which structure is actually available gets answered on the first call instead of the fourth.
FHA one-time close
FHA’s version sits in HUD Handbook 4000.1 at II.A.8.j. The builder must be a licensed general contractor, full stop, and you may act as your own only if you hold that license. The land is either purchased at closing or already owned, and lot equity can serve as the minimum required investment.
What sets FHA apart from the other two is its treatment of the rate. It may float during construction under a written agreement documenting the float range, the lock-in point and a maximum permanent rate, with the borrower free to lock lower, and the borrower has to qualify at that maximum from the start. The second distinguishing line is the endorsement: the mortgage is not FHA-insurable until the final inspection or the certificate of occupancy, whichever comes later. How the escrow, the draws and the conversion actually run is common to all three, and the construction-to-permanent page sets that out step by step.
VA construction: the LIP account and two reserves
VA Circular 26-18-7, dated April 6, 2018, replaced the construction chapter of the Lender’s Handbook and still governs the structure. Both one-time and two-time closings are eligible. The loan closes before construction starts, proceeds cover the cost to build and the lot or the balance owed on it, and the remainder sits in what VA calls the Loan in Process account, or draw account, paid to the builder in stages. Written borrower approval is required before each disbursement.
Two financeable items make VA distinctive. Acquisition costs can include an interest reserve and a contingency reserve, alongside the contract to build, the lot if acquired within a year of the VA loan closing, and permits not already in the contract. The builder, meanwhile, pays construction-period interest on a one-time close where the interest reserve does not cover it, plus the fees a builder would normally carry on an interim construction loan.
Three inspection routes, and one appraiser at the end
VA accepts three ways of inspecting a build. The local authority performs foundation, framing and final inspections and issues a certificate of occupancy. Or the local authority inspects but issues no certificate, in which case its reports or a written statement are accepted. Or, where the local authority does not inspect at all, the property must carry a HUD-accepted ten-year insured protection plan plus a one-year VA builder’s warranty.
The final inspection is done by the original VA appraiser at 100% completion, certifying that minimum property requirements are met and that the house matches the plans, specifications and approved change orders. Those requirements include a termite inspection in Pennsylvania, which on a new build is one more line the builder schedules. The lender negotiates and enforces the inspection schedule with the general contractor, and confirms that the builder is licensed, bonded and insured. All minimum property requirements have to be satisfied before the Loan Guaranty Certificate issues.
One more piece of timing: on a one-time close, the VA refinance seasoning clock — 210 days from the first payment due date plus six consecutive on-time payments — does not start until the loan converts to permanent financing.
Conventional: single-close against two-close
Fannie Mae’s single-closing rules (B5-3.1-02, last updated May 6, 2026) allow a purchase or a limited cash-out refinance. Cash-out is not eligible. Whether you owned the lot at the first advance sets the loan-to-value basis, the down payment must come from your own funds unless the ratios are 80% or lower or you are buying a one-unit principal residence with gifts, grants or employer assistance, and the construction period may not exceed 12 months in one period or 18 in total.
The two-closing version (B5-3.1-03) closes the permanent loan separately as a limited cash-out or a cash-out refinance. For cash-out, the borrower must have held legal title to the lot for at least six months before the permanent mortgage closes. That six-month clock is the reason a lot bought in a hurry sometimes has to wait.
What every program wants from the builder
The paperwork overlaps enough to make one checklist:
- A license, and lender confirmation that the builder is bonded and insured.
- A fully executed contract to build stating the price.
- Plans and specifications, which the appraisal can be written against.
- A line-item cost breakdown, or documented subcontractor bids and material invoices where the borrower is the contractor.
- Permits, and a warranty where the local authority does not inspect.
In Chester County’s western townships that list arrives alongside an on-lot sewage permit and a well permit from the county Health Department, so the builder’s budget and the county’s file end up describing the same house.