Financial Help to Build a House in Pennsylvania (Guide to Grants, Loans & Programs)

Building a house in Pennsylvania is one of the few ways to get exactly the home, layout, and location you want. But when you start adding up the costs—land, survey, site work, permits, architectural plans, construction, plus the down payment and closing costs on a construction loan—it can easily feel out of reach. The good news is that Pennsylvania has a dense network of state, federal, and local programs designed to reduce those upfront costs, especially for first-time and moderate-income buyers.

The key is to stop thinking of your project as “just a mortgage” and instead treat it like a financing stack. At the core, you use a construction-to-permanent loan (often FHA, VA, USDA, or conventional). On top of that, you layer statewide help from the Pennsylvania Housing Finance Agency (PHFA), and then add city or county down payment assistance in places like Philadelphia and Pittsburgh. Put together correctly, this stack can radically shrink your cash-to-close and make building a home in Pennsylvania much more realistic.

In this guide, you’ll see how to get financial help to build a house in Pennsylvania in 2025, with in-text links to official and reputable websites so you can dive deeper into each program.

How Construction-to-Permanent Loans Work in Pennsylvania

When you buy an existing home, you typically get one straightforward mortgage: you close, you move in, and you make principal-and-interest payments. When you build, lenders need more structure and more safeguards. That’s why most Pennsylvania lenders use a construction-to-permanent loan (often called a “one-time-close” loan).

With a Construction-to-permanent Loan:

• You close once on a single loan that will ultimately become your long-term mortgage.
• During the build, the lender issues money to your builder in draws as each stage of the home is completed.
• While the home is under construction, you usually pay interest only on the amount drawn so far.
• When the home is finished, inspected, and issued a Certificate Of Occupancy, the loan converts into a normal mortgage (often a 30-year fixed-rate loan).

Many of these loans are built on top of federal programs:

• USDA for eligible rural areas with up to 100% financing.
• VA for eligible veterans and service members, often with no down payment and no PMI.
• FHA for buyers who need a low down payment and more flexible credit standards.

For example, FHA loans are government-backed mortgages insured by the Federal Housing Administration, allowing down payments as low as 3.5% for borrowers with qualifying credit scores and more flexible underwriting than many conventional loans, as described in federal consumer resources on FHA mortgages and government home loans from the Consumer Financial Protection Bureau and USA.gov. These programs emphasize that FHA insurance helps lenders offer lower down payments and closing costs than conventional loans typically allow.

The important point is that the construction loan is step one, and assistance programs are step two. You first qualify for the basic construction-to-permanent loan, then you use Pennsylvania’s statewide and local tools to reduce the down payment and closing costs that loan requires.

Statewide Help: How PHFA Makes Building More Affordable

The backbone of homeownership assistance in Pennsylvania is the Pennsylvania Housing Finance Agency (PHFA). PHFA is a state agency that partners with private lenders to offer affordable 30-year fixed-rate mortgages plus down payment and closing-cost help. If you plan to build or buy a brand-new home in the Commonwealth, you should start by exploring the official PHFA homebuyers page.

PHFA doesn’t lend directly to consumers. Instead, it works through PHFA-approved lenders to offer a menu of first mortgage programs—such as Keystone, Keystone Government, and HFA Preferred™ / HFA Advantage®—and then layers on assistance loans and grants to help with the upfront cash.

For a new build, the typical pattern is:

1. Your lender arranges a construction-to-permanent loan using an eligible FHA, VA, USDA, or conventional product.
2. When construction is complete, the permanent mortgage is structured as a PHFA home purchase loan, such as Keystone Flex with K-FIT, which is designed to pair a PHFA first mortgage with a PHFA assistance loan.
3. Because your permanent loan is a PHFA product, you may qualify for powerful down payment and closing-cost assistance on top.

PHFA First Mortgages (Keystone & HFA Programs)

PHFA’s first-mortgage options are built to be stable and affordable:

• They are typically 30-year fixed-rate loans, eliminating interest-rate surprises.
• They can be backed by FHA, VA, USDA Rural Development, or conventional investors, depending on the program.
• They are designed to work with PHFA’s own assistance products, like K-FIT and Keystone Advantage.

The Keystone Flex with K-FIT option, for instance, is specifically set up so the first mortgage (conventional, FHA, VA, or USDA) is automatically paired with the Keystone Forgivable in Ten Years assistance loan, making it easier to line up everything in one package.

When you’re building a house, the PHFA piece usually appears after the construction phase: once the home is completed and ready to convert to a permanent loan, the permanent mortgage is set up as a PHFA loan so you can unlock assistance.

K-FIT – Keystone Forgivable in Ten Years

One of PHFA’s standout tools is K-FIT (Keystone Forgivable in Ten Years), a second mortgage designed specifically to help homebuyers with down payment and closing costs.

According to PHFA’s official description of the K-FIT program, eligible borrowers can receive:

• A forgivable second mortgage equal to 5% of the lesser of the purchase price or appraised value,
• With no maximum dollar limit,
• That is forgiven over ten years, typically at 10% per year, as long as you stay in the home and meet program requirements.

Because K-FIT is a 0% interest second mortgage and does not require monthly payments, it doesn’t increase your monthly mortgage burden. It simply sits “behind” your first mortgage as a silent second loan. If you stay in the home long enough (usually ten years), the entire amount is forgiven and never has to be repaid; if you sell or refinance earlier, you repay only the unforgiven portion.

For a new construction in Pennsylvania, if your finished home appraises at $380,000, a K-FIT loan could provide 5%, or $19,000, toward your down payment and closing costs. That amount can easily cover the minimum equity contribution for an FHA or conventional loan and a large portion of settlement expenses.

Keystone Advantage & Other PHFA Assistance

PHFA also offers the Keystone Advantage Assistance Loan Program, another second-mortgage option for buyers who need help covering the upfront costs of a home purchase.

The official Keystone Advantage Assistance page explains that:

• Keystone Advantage provides a second mortgage of up to 4% of the purchase price or appraised value, or $6,000, whichever is less.
• The loan carries 0% interest and is repaid over ten years in monthly installments.

This program is not forgivable like K-FIT, but because it is interest-free, it is still far cheaper than using credit cards or personal loans to scrape together closing costs. Keystone Advantage can be combined with certain PHFA first mortgages and, in some cases, with K-FIT when the buyer meets program guidelines.

PHFA also offers a small PHFA Grant (for example, a $500 grant tied to certain HFA Preferred™ loans) that doesn’t need to be repaid and can be applied directly to closing costs. These details are outlined on the main PHFA assistance programs page.

For a buyer building a house, the ideal setup often looks like this:

• A PHFA first mortgage (Keystone Flex, Keystone Government, or HFA Preferred™) as the permanent loan after construction.
• A K-FIT forgivable second for 5% of the price to cover the bulk of down payment and closing costs.
• A Keystone Advantage loan or small PHFA grant to fill any remaining gap.

This stack can easily turn a difficult five-figure cash requirement into something you can actually handle.

Federal Loans That Work Well for New Construction in Pennsylvania

Statewide help like PHFA works best when it sits on top of a federal loan designed for affordability. For new construction in Pennsylvania, the three big ones are USDA, VA, and FHA.

USDA Loans – 0% Down in Rural Pennsylvania

If you’re building in a rural or small-town part of Pennsylvania, a USDA Rural Development loan can be incredibly powerful. The USDA Single Family Housing Guaranteed Loan Program allows eligible borrowers in rural areas to purchase, build, rehabilitate, improve, or relocate a home with up to 100% financing, meaning no down payment in many cases. You can read the official description on the USDA’s Single Family Housing Guaranteed Loan page.

Key points:

• USDA loans are designed for low- to moderate-income households with incomes up to about 115% of area median income.
• They offer 30-year fixed-rate mortgages with competitive interest rates.
• Funds can be used to build a new home in eligible rural areas, not just to buy existing properties.

USDA has specific guidance for new construction, explaining in its training materials that newly constructed homes may be financed with the Guaranteed Loan Program as long as they meet program requirements for safety, quality, and inspection. This means a USDA construction-to-permanent loan is a viable way to finance a new build in rural Pennsylvania.

Once you have that USDA one-time-close loan in place, the permanent phase can sometimes be structured as a PHFA Keystone Government loan backed by USDA. If the lender participates with PHFA, you can then layer K-FIT or Keystone Advantage on top to handle closing costs, leaving you with little or no cash requirement beyond small reserves and prepaids.

VA Loans – Building for Veterans and Service Members

If you are a veteran, active-duty service member, qualifying National Guard/Reserve member, or eligible surviving spouse, the VA home loan is one of your strongest tools. The U.S. Department of Veterans Affairs explains on its VA home loan programs page that VA-backed loans are designed to help you buy, build, or improve a home you will live in as your primary residence.

With a VA-backed purchase or construction loan:

• You may be able to build with no down payment, as long as the total loan amount is supported by the appraised value.
• There is no private mortgage insurance (PMI), which keeps monthly payments lower than many low-down-payment conventional loans.
• Lenders typically offer competitive interest rates on VA-backed mortgages.

Recent VA updates and outreach emphasize that VA construction loans are available to help veterans build their “dream homes,” and they can allow no down payment and no PMI, similar to standard VA purchase loans, depending on the borrower’s eligibility and disability rating.

In Pennsylvania, not every lender offers VA construction-to-permanent loans, so you’ll want to look specifically for a VA-approved lender that advertises VA construction loans. Once you find one, you can ask whether the permanent phase can be aligned with PHFA so that you can add K-FIT or other Pennsylvania assistance for closing costs.

FHA Loans – Flexible Option for First-Time Builders

For many Pennsylvanians who aren’t eligible for USDA and VA, an FHA construction-to-permanent loan is the most accessible way to build a home. FHA loans are insured by the Federal Housing Administration and are described in consumer resources from the Consumer Financial Protection Bureau and USA.gov as mortgages that allow lower down payments and more flexible credit standards than conventional loans.

In general:

• FHA loans allow down payments as low as 3.5% for borrowers who meet credit score guidelines.
• FHA provides mortgage insurance to protect lenders, enabling them to lend to buyers who might not qualify for strict conventional standards.
• There are specific FHA products (often called “FHA One-Time Close” or FHA construction loans) that bundle land + construction + permanent mortgage into one package.

In Pennsylvania, many lenders are familiar with FHA construction loans, making it easier to find a bank or mortgage company that will do this type of financing. Once your FHA construction loan converts to a permanent loan, the permanent phase can often be structured as a PHFA Keystone Flex or Keystone Government loan, depending on program rules and lender participation. That opens the door to K-FIT and Keystone Advantage for the down payment and closing costs.

The result is a powerful combination: the low down payment and flexible underwriting of FHA, plus the down payment assistance of PHFA, plus any city or county help available in your specific location.

Local & City Programs That Can Stack with PHFA

On top of PHFA and federal support, many Pennsylvania cities and counties run their own down payment and closing-cost assistance programs. These are especially important in Philadelphia, Pittsburgh, and some mid-sized cities, and in many cases they can be used to buy newly built homes as long as the buyers and properties meet the program rules.

Philadelphia – Philly First Home and City Grants

In Philadelphia, the city offers grants to help first-time buyers with down payment and closing costs. The city’s official “Buy your first home” service page explains that Philadelphia provides grants to assist with these costs, typically requiring you to complete homeownership counseling and commit to using the home as your primary residence for a certain number of years. You can review current details on the City of Philadelphia’s Buy your first home page.

In addition, the Philly First Home program—administered by Philadelphia’s public development corporations—has provided a homebuyer assistance grant of up to $10,000 or 6% of the purchase price, whichever is lower, to help first-time homebuyers reduce their principal, cover down payment, and pay closing costs. Program information and updates are published on the Philly First Home page and through local housing partners.

These programs are often usable for newly built homes within the city, especially when those homes are part of an affordable-housing or redevelopment initiative. If you’re building or buying a new construction property in Philadelphia:

1. Use a PHFA-eligible first mortgage as your permanent loan.
2. Add K-FIT and/or Keystone Advantage.
3. Layer a city grant like Philly First Home to cover remaining costs, if the property and your income qualify.

You’ll almost always be required to complete homebuyer counseling with a HUD-approved or city-approved agency before funds are released, but this counseling also helps you navigate the complexity of stacking multiple programs.

Pittsburgh – URA Down Payment and New Construction Help

In Pittsburgh, the Urban Redevelopment Authority (URA) runs several programs aimed at helping buyers, especially in targeted neighborhoods.

The URA’s Down Payment and Closing Cost Assistance Program offers up to $7,500 for first-time homeowners with income at or below 80% of area median income (AMI) and up to $5,000 for buyers between 80% and 115% of AMI. The assistance comes as a 0% interest deferred loan with no monthly payments, forgivable or repayable based on how long you remain in the home, as outlined in URA program flyers and the official Down Payment and Closing Cost Assistance page.

The URA also operates Home Buyer Loans and neighborhood programs that provide 0% interest deferred second mortgages to encourage the purchase of newly constructed or rehabilitated single-family homes in specific neighborhoods. These are described on the URA Home Buyer Loans page and are explicitly designed to help buyers purchase newly built or improved homes in targeted areas.

For someone building in Pittsburgh—or buying a new construction home from a builder working with the URA—the stack could look like:

• A PHFA first mortgage as the permanent loan.
• K-FIT or Keystone Advantage from PHFA.
• A URA down payment/closing-cost loan or neighborhood second mortgage for additional help.

This layered approach can bring your required cash down to a level that’s realistic even in a higher-cost urban market.

Other Cities and Counties Across Pennsylvania

Across the state, numerous cities and counties run their own first-time homebuyer and down payment assistance programs using federal HOME and CDBG funds. Examples include:

• County-level first-time buyer programs described by statewide overviews of Pennsylvania down payment assistance and by resources summarizing multiple county programs (such as assistance in Beaver County, Chester County, and others).
• City programs in mid-sized metros like Allentown, Bethlehem, Reading, Harrisburg, Lancaster, and Erie, which often provide grants or deferred loans for down payment and closing costs for buyers within city limits.

These local programs frequently:

• Require buyers to be first-time homeowners or not have owned in the last three years.
• Limit eligibility to households under 80% (or sometimes 100–115%) of area median income.
• Require homebuyer counseling from a HUD-approved agency.
• Set maximum purchase prices to keep funds focused on modest homes.

In many cases, the funds can be used on newly built homes, especially when those homes are part of city-sponsored redevelopment or are priced under program caps. That means you can often combine:

• A PHFA mortgage and K-FIT with
• A city or county grant or deferred-payment loan,

to greatly reduce your out-of-pocket costs when you build or buy new construction in those areas.

Who Qualifies for Help When You’re Building?

Every program has its own rulebook, but several themes repeat:

Income limits. Most assistance is aimed at low- and moderate-income households. PHFA publishes county-specific income and purchase-price limits on its homebuyer pages. USDA sets income caps at about 115% of area median income for its Guaranteed loans. Local programs often target buyers at or below 80% of AMI, with some offering smaller benefits up to 115% or 120% of AMI.

Purchase price caps. PHFA, USDA, and city programs typically cap the maximum home price they’ll support. If your build is significantly above those caps, you may still use some PHFA financing but miss out on certain grants or forgivable seconds.

Credit and debt-to-income. Lenders will expect:

• A reasonable credit score (FHA and USDA often work best at 620–640+, though FHA can sometimes go lower depending on the lender).
• A manageable debt-to-income (DTI) ratio, typically in the low- to mid-40% range or below.

Because construction-to-permanent loans are more complex and riskier for lenders, they may be more conservative than simple purchase loans.

Owner-occupancy and time requirements. Nearly every program requires that the home be your primary residence, not a rental or vacation property. Assistance like K-FIT and many city grants are tied to minimum occupancy periods (often 10–15 years) for full forgiveness. Selling or refinancing early can trigger partial repayment.

Homebuyer education. PHFA and most local programs require you to complete homebuyer education and sometimes one-on-one counseling through a HUD-approved housing counseling agency. This is more than a box to check: a counselor can help you understand how construction loans work, how to stack programs correctly, and whether your budget and timeline are realistic.

Step-by-Step Plan to Use These Programs to Build a House in Pennsylvania

Here’s how all of this turns into a practical plan.

Step 1 – Choose Where You Want to Build

Start with geography. Your location determines:

• Whether USDA is an option (rural and small-town areas).
• Whether there’s city-level assistance (Philadelphia, Pittsburgh, and many mid-sized cities).
• How high your land and construction costs are likely to be.

If you’re looking at a rural county or small town, check USDA eligibility using the property-eligibility tools linked on the USDA Single Family Housing Programs page. If you prefer a city, look at the housing pages on your city’s official website and see what first-time buyer or down payment programs are currently funded.

Step 2 – Map Out Your Core Loan

Next, decide on your core construction-to-permanent loan type with a lender:

• USDA construction-to-permanent if you’re in an eligible rural area and meet income caps.
• VA construction loan if you have VA eligibility and want the potential for 0% down and no PMI.
• FHA construction-to-permanent if you need a low down payment and more flexible credit in a non-rural area.
• Conventional construction-to-permanent if your project is higher-end or doesn’t fit government programs.

When you talk to lenders, ask directly:

• “Are you a PHFA-approved lender?”
• “Can you structure my permanent mortgage as a PHFA loan so I can use K-FIT or Keystone Advantage?”
• “Do you have experience with USDA/VA/FHA construction-to-permanent loans in Pennsylvania?”

You want a lender who has already done new-construction deals using these programs, not one learning on your file.

Step 3 – Add PHFA and Local Assistance

Once the lender has identified your likely first-mortgage path, work with them (and a housing counselor) to layer assistance:

• Use a PHFA home purchase loan (like Keystone Flex with K-FIT or a Keystone Government loan) as the permanent mortgage.
• Add K-FIT for 5% of the purchase price or appraised value as a forgivable second mortgage for down payment and closing costs.
• Add Keystone Advantage for up to 4% or $6,000 as a 0% interest ten-year loan to cover any remaining gap.
• If you’re in a city with local programs—such as Philadelphia’s homebuyer grants or Pittsburgh’s URA Down Payment and Closing Cost Assistance Program—layer those as well, as long as the lender and program rules allow it.

Have the lender prepare a detailed cash-to-close estimate that shows:

• Total project cost.
• Loan amounts (first mortgage + PHFA seconds + local loans/grants).
• Exactly how much cash you must bring to closing.

If that number still feels too high, you can adjust your budget, re-evaluate location, or explore additional assistance.

Step 4 – Pick the Right Builder and Timeline

With financing roughly mapped out, it’s time to choose a builder. For a project that uses USDA, VA, FHA, and PHFA:

• Look for a builder who has experience with bank-financed construction, not just cash buyers.
• Ask whether they’ve worked on projects involving USDA, VA, FHA, or PHFA-backed loans before.
• Make sure they can provide Fixed-price Contracts or detailed cost breakdowns and are comfortable with draw inspections from the lender.

You’ll also need to be realistic about timeline. Construction loans usually have a maximum build period (often 9–12 months), and PHFA or city program approvals may have expiration dates. Coordinating these timelines with your builder and lender is crucial so you don’t lose an assistance approval because your project ran long.

Step 5 – Complete Education, Lock the Loan, and Start Building

Before closing on your construction loan, make sure you:

• Complete any required homebuyer education with a HUD-approved counseling agency or PHFA-approved provider.
• Obtain formal approvals for PHFA assistance (K-FIT, Keystone Advantage) and any local grants/loans.
• Have the lender lock in your construction-to-permanent terms and confirm that the permanent phase will be a PHFA-eligible mortgage.

Once those pieces are in place, you can close on the loan, break ground, and let your builder get to work, knowing that you’ve already handled the hardest financial puzzle pieces.

Final Thoughts: Turning a Pennsylvania Building Dream into a Realistic Plan

Building a home in Pennsylvania in 2025 is not simple. Land can be expensive, construction costs are volatile, and construction-to-permanent loans are more complicated than a standard purchase mortgage. But when you pull together the full stack of support—PHFA’s affordable mortgages and assistance loans, USDA/VA/FHA construction-friendly programs, and city or county down payment aid—the numbers look very different.

Instead of trying to fund everything on your own, you are using the system that already exists to lower your down payment, cover your closing costs, and stabilize your long-term payments. Your job is to:

1. Pick the location that unlocks the most options.
2. Choose a construction-to-permanent loan that fits your situation.
3. Stack PHFA assistance and local grants or deferred loans on top.
4. Work with a builder and lender who know how to navigate these programs.

The smartest next move is to visit the PHFA homebuyers page and schedule a conversation with a PHFA-approved lender and a HUD-approved housing counselor in your region. Once they show you what K-FIT, Keystone Advantage, and local assistance can do for your specific project, the idea of building your own house in Pennsylvania stops being a distant dream and starts becoming a plan you can actually execute.