How to Use State HFA Down Payment Assistance with Construction Loans (Without Breaking Rules)

Building a home and trying to stack down payment assistance on top of a construction loan can feel like you’re trying to dock two moving boats. It’s doable—and for the right buyers, it’s a smart way to stretch cash—but the rules are real, and the penalties for getting it wrong can be expensive. I’ve structured and closed Construction-to-permanent Loans for years, and the biggest wins happen when buyers pick the right loan structure early, match it to a state HFA that actually allows it, and plan their cash flow carefully for the build period. This guide walks you through how to make State HFA down payment assistance (DPA) work with construction loans without stepping on any landmines.

Quick context: what we’re pairing together

Before we get tactical, let’s make sure we’re using the same playbook.

• State Housing Finance Agency (HFA) DPA: State-run programs that typically pair with FHA, VA, USDA, or conventional loans. Help can be a grant, a forgivable second mortgage, or a repayable second. Typical amounts: 2–5% of the loan amount, sometimes a flat dollar amount ($5,000–$25,000). They come with strings: income limits, purchase price caps, first-time-buyer status in some cases, education course, and they must follow both HFA and first mortgage rules.

• Construction financing flavors:
  • One-Time Close (OTC) or Construction-to-Permanent (C2P), single-close: You close once up front. The loan funds the build via draws and then automatically converts to your permanent mortgage when the home is done. FHA, VA, and USDA all have OTC versions. Conventional (agency) OTC exists, but is less common through HFAs.
  • Two-close construction: You close a short-term construction loan first, then refinance into a permanent mortgage after the build. Most HFA programs don’t play nicely with this because their DPA is designed to fund at the same time as the permanent loan closing.

• Why this pairing is tricky: HFA DPA usually funds at mortgage closing, not during construction draws. Some HFAs won’t allow construction at all. Others allow it only if the HFA first mortgage is the permanent financing on a single-close OTC. If you try to use DPA to reimburse money already spent or fund ineligible costs, you can blow up the deal.

A helpful data point: industry estimates suggest roughly 10–14% of purchase mortgages nationally involve some form of down payment assistance in a given year. Among first-time buyers using FHA, usage is often higher regionally. For construction, the percentage is smaller, largely because of program restrictions and lender overlays—but when it fits, DPA can cover a big chunk of your minimum investment and closing costs.

The three workable paths to combine HFA DPA and construction

Not every combination works. These are the three setups I see close without drama.

1) Single-close OTC using the HFA first mortgage and DPA at the same closing

This is the cleanest path. You lock the HFA first mortgage up front (FHA, VA, or USDA are most common), close once, DPA funds at that closing, and construction proceeds with draws.

When it works:

• The HFA explicitly allows single-close construction in its program guide.
• Your lender is approved for both the HFA program and the OTC product.
• The HFA has a lock period long enough to cover a standard build cycle or allows extensions.

Why it’s good:

• DPA funds are applied right away to eligible costs (down payment and closing costs).
• You don’t need to bring all your down payment in cash.
• The permanent loan terms are fixed from day one.

Where it breaks:

• HFA prohibits construction loans altogether.
• The HFA’s lock period is too short and extensions are costly or not allowed.
• The builder or general contractor doesn’t meet OTC and HFA eligibility.

2) Two-close construction followed by an HFA first mortgage at completion (with no DPA reimbursement)

This can work if your HFA allows the permanent loan to be an HFA first mortgage after the build. However, most HFAs will not let their DPA reimburse cash you already used. You’d need to fund your construction down payment and soft costs without DPA, then close the HFA first mortgage at completion (possibly with a smaller HFA DPA only for closing costs at that time if the HFA allows it).

When it works:

• HFA permits “take-out” financing on newly built homes and allows locking after Certificate Of Occupancy.
• You don’t rely on DPA to supply the minimum cash to start construction.

Why it’s tricky:

• You pay two sets of closing costs and carry construction financing risk.
• DPA may be minimal or unavailable since the down payment was already made.

3) Builder-financed construction (or purchase from builder post-completion) with HFA DPA on the purchase loan

Some builders carry construction financing and sell you the completed home. This looks like a standard purchase—much easier to pair with HFA DPA.

When it works:

• The builder is funding the build and only sells you the finished home.
• HFA DPA applies like any normal purchase.

Trade-offs:

• Less customization during construction.
• Price can be higher since the builder carries financing risk.

If your goal is maximum leverage with minimal upfront cash, option 1 (single-close OTC with HFA DPA) is usually the target.

What rules you absolutely can’t break

You need to satisfy four rulebooks: the HFA, the first mortgage agency (FHA/VA/USDA/conventional), your lender’s overlays, and—if applicable—bond or master servicer rules. Here are the big ones that trip people up.

1) DPA must be an eligible source and properly documented

• HFA-provided DPA is generally an eligible source for FHA/VA/USDA. For conventional loans, agency and HFA rules both apply. Your lender will document the DPA approval, terms, and verify delivery of funds at closing.
• No disguised contributions: DPA can’t be indirectly funded by an interested party like the builder or lender through premium recapture or circular arrangements. This is a frequent audit issue for FHA loans. Stick to recognized HFA programs.

2) No cash back to the borrower

• Funds must go to eligible costs: down payment, allowed closing costs, prepaid items if permitted.
• If there’s leftover DPA after costs are paid, it must reduce the principal or stay undisbursed—not cut you a check.

3) Combined Loan-to-Value (CLTV) limits

• FHA: Max LTV is typically 96.5%, and CLTV can go up to 105% with government or eligible non-profit secondary financing. Construction math uses the lesser of appraised “as-completed” value or total acquisition cost (land plus improvements) depending on program.
• VA: Up to 100% LTV; DPA may create a CLTV above that in some cases, subject to VA and HFA acceptance.
• USDA: Up to 100% LTV; closing costs can sometimes be rolled in if the appraisal supports it. CLTV limits with DPA come from USDA and HFA rules together.
• Conventional: LTV/CLTV limits vary with product and HFA. Higher LTVs typically have lower allowed seller concessions.

4) Interested party contributions (IPCs) and builder incentives

• FHA typically caps IPCs at 6% of the sales price (applies to closing costs, discount points, etc., not to DPA from a governmental HFA).
• Conventional caps IPCs at 3% when the LTV is above 90% for primary residences (goes up to 6% when LTV is 75–90%). DPA from an HFA isn’t an IPC, but builder credits are.
• Don’t double-count: if the builder is giving a $10,000 credit and you’re using DPA, make sure total credits don’t exceed allowed caps and that they only cover eligible costs.

5) Timing and use-of-funds restrictions

• With OTC, DPA funds at the single closing—not during construction draws.
• DPA typically cannot fund construction interest reserves, contingency reserves, builder deposits beyond what’s recognized as part of acquisition, or any work not attached to real property (appliances and landscaping rules vary).
• If you try to use DPA to reimburse deposits you paid months before closing, expect pushback. Some programs allow earnest money credits; many do not allow reimbursement beyond verifying it as part of your minimum investment per agency rules.

6) Occupancy, education, and income rules

• Most HFA DPA is for owner-occupants only. You’ll sign occupancy affidavits and may face enforcement if you move out early.
• Income limits and purchase price caps are non-negotiable. They can vary by county and family size.
• Most HFAs require a homebuyer education course, often from a HUD-approved provider, completed before closing.

7) Builder and project eligibility

• FHA/VA/USDA OTC loans require a licensed, insured general contractor with a Fixed-price Contract and acceptable experience. Self-builds (acting as your own GC) are usually not allowed for agency OTC when paired with HFA financing.
• The property must meet agency and HFA standards—no unusual acreage, no commercial use, and local building codes must be followed.

If your plan violates any of the above, don’t brute-force it. Redesign the structure.

The step-by-step playbook that works

This is the flow I recommend to buyers who want to combine HFA DPA with a construction loan.

Step 1: Start with the HFA’s rulebook and a lender who can do both

• Find your state HFA’s lender manual and verify whether they allow Construction-to-Permanent Loans Explained: The Complete Guide for First-Time Builders">Construction-to-permanent loans. Some HFAs categorically exclude construction; some only allow it with specific lenders or first mortgage types.
• Interview lenders before you ever sign a builder contract. Ask: “Do you close HFA single-close construction (OTC) loans with DPA? Which states and programs? How many in the last 12 months?” If they hedge, keep shopping.
• Confirm lock periods and extension policies. A 6–12 month lock is ideal for OTC. Expect price add-ons (often 0.5–1.5 points) for extended locks.

Pro tip: Some HFAs publish a preferred-lender list for construction. Start there.

Step 2: Structure your project and budget for eligibility

• Decide on land: Are you buying land now, do you already own it, or will the builder carry it? Land equity can count toward your minimum investment and LTV calculations.
• Get a detailed fixed-price contract from your builder. Allowances are okay but keep them realistic—big swings later can trigger re-underwriting.
• Include a contingency (I like 5–10% of hard costs). Lenders will want to see it—even more critical with custom builds.

What the lender will model:

• Total acquisition cost = land cost (or as-is value if you already own) + hard costs + soft costs + permits + builder fee + contingency.
• Appraised as-completed value based on plans, specs, and comps.
• LTV/CLTV tests against both values per the first mortgage program’s rules.

Step 3: Lock the HFA program and DPA product that actually funds at OTC closing

• DPA form matters. Grants and forgivable seconds are clean. Repayable seconds are fine but add a payment or balloon—your DTI must absorb it.
• Confirm DPA dollar amount and cap. If the HFA offers “3% of the first mortgage amount,” and your loan is estimated at $420,000, plan for about $12,600 in DPA.
• Make sure the HFA’s DPA can be used with OTC. Some HFAs allow their first mortgage on OTC but restrict DPA to existing-home purchases only. That won’t help you.

Step 4: Line up cash for what DPA will not cover

Even with DPA, you’ll need real cash. Build a simple spreadsheet for:

• Construction interest during the build (interest-only on disbursed amounts): On a $400,000 budget with average outstanding balance of $200,000 over 8 months at 6.75%, that’s roughly $9,000–$10,000 in interest.
• Inspections and title update fees: $1,000–$2,500 total.
• Appraisal (standard + “as-completed”): $800–$1,400.
• Permits, utility taps not covered by builder, and any out-of-contract upgrades.
• Reserves your lender may require (often 2–6 months PIT reserves depending on program and risk profile).

DPA is great for down payment and closing costs at the single close. It won’t carry your build-period cash needs.

Step 5: Nail the appraisal and documentation early

• Provide a full set of plans, specs, and the fixed-price contract to the appraiser. Vague specs lead to conservative comps and lower appraised value.
• If you own the land, gather proof of purchase price, date, and current lien info. Some programs will use as-is appraised land value; others cap the credit to the purchase price if acquired recently.

If appraisal comes in low:

• Re-scope finishes or reduce allowances.
• Increase borrower cash or builder credit (within IPC limits).
• Use land equity if available.
• Reconsider program (e.g., USDA vs. FHA) if location and eligibility allow.

Step 6: Close the OTC with DPA and understand your draw process

At single close:

• Your HFA first mortgage and DPA second (or grant) both close. Funds are allocated to down payment and eligible closing costs per the closing disclosure.
• You sign construction loan documents that govern draws, inspection thresholds, and cost overrun treatment.

During construction:

• Draws go to the builder against completed work. Expect 5–9 draws on a typical custom build.
• You’ll typically make interest-only payments on drawn funds. Set up autopay. Missed interest during construction is a quick way to make underwriters nervous when you convert.
• Change orders: avoid them. If you must, document clearly, and understand whether added costs require more cash or a re-approval.

Step 7: Conversion to permanent phase

With single-close OTC, conversion is mechanical after:

• Final inspection and certificate of occupancy (CO).
• Final title update with no new liens.
• Any final compliance check from the HFA/servicer.

Your permanent rate and terms were established at the initial close. You won’t re-qualify unless delays trigger expiration of the lock or major changes occurred. Your DPA second remains in force per its terms (forgiveness conditions, occupancy period, etc.).

Real-world scenarios with numbers

Numbers help this click. These are simplified but representative.

Scenario A: FHA OTC with HFA forgivable DPA

• Location: Metro area where HFA allows OTC on FHA with DPA.
• Total project: $475,000 (land $85,000, build $360,000, soft costs $30,000).
• Appraised as-completed value: $490,000.
• Borrower owns the land free and clear; land was bought 2 years ago for $70,000.
• HFA DPA: 3.5% forgivable second, up to $15,000.

Structure:

• FHA minimum investment is 3.5%. Using the lesser of appraised value or acquisition cost: 3.5% of $475,000 = $16,625.
• Land equity: If lender uses current appraised land value (say $90,000), equity can satisfy all or part of the minimum investment. Some lenders cap to original purchase price ($70,000) depending on timing; either way, sufficient equity exists.
• DPA use: Since minimum investment is satisfied by land equity, the HFA DPA can be allocated entirely toward closing costs/prepaids and to reduce principal—subject to HFA policy.

Cash plan:

• Borrower still needs cash for construction interest (~$9,000), inspection/title updates (~$1,800), and reserves (3 months PIT maybe ~$8,000), none of which DPA can cover.

Gotchas avoided:

• No reimbursement issues—DPA was applied at closing.
• IPCs kept under 6% with a modest builder credit for a driveway upgrade.
• CLTV within FHA/HFA limits.

Scenario B: USDA OTC with gifted land and DPA for closing costs

• Location: Eligible rural area; HFA allows OTC with USDA.
• Total project: $350,000.
• Appraised as-completed value: $355,000.
• Borrower’s parent gifts land (value $40,000) via a recorded deed before closing.
• HFA DPA: Flat $8,000 grant.

Structure:

• USDA allows 100% LTV. Land equity as a gift can reduce the financed amount or count toward required reserves per lender overlays.
• DPA: Applied to closing costs and prepaid taxes/insurance. Any extra reduces principal.

Cash plan:

• Interest during construction: ~6 months, average draw $175,000 at 6.5% ≈ $5,700.
• Education course, appraisal, and inspection fees paid out of pocket.

Gotchas avoided:

• Documented gift of land with a proper gift letter and title seasoning.
• Kept total concessions within USDA/HFA rules.
• Ensured property met USDA rural and property standards early.

Scenario C: Two-close restructured to single-close to preserve DPA

• Original plan: Borrower started a bank construction-only loan expecting to refinance into an HFA mortgage with DPA later. HFA DPA would not reimburse the 5% already paid into the construction budget.
• Pivot: Switched to an HFA-approved OTC lender before the slab was poured. Builder revised contract for single-close draw administration. DPA funded at the OTC closing, covering most closing costs and part of minimum investment, with remaining borrower cash allocated to interest reserves and contingency.
• Outcome: Saved roughly $7,500 in second closing costs and kept the $12,000 DPA benefit that would have been lost under the two-close plan.

Lesson: If DPA matters to your budget, commit to an OTC structure upfront.

Costs, timelines, and rate logistics to plan for

• Lock period: OTC locks of 6–12 months are common but pricier than 60-day locks. Pricing add-ons of 0.50–1.50 discount points aren’t unusual. Ask about extension fees (often 0.125–0.25 points per 30 days).
• Time to close: An OTC approval with HFA overlays can take 30–60 days to assemble: builder vetting, plans/specs appraisal, HFA compliance. If you own land and plans are complete, schedule 45 days minimum.
• Build time: Average 6–10 months for a custom build, longer in labor-constrained markets. Weather and permitting push timelines; add buffer so your lock doesn’t expire.
• Insurance: You’ll need a builder’s risk or course-of-construction policy. Budget $1,500–$3,500 depending on location and project size.
• Title updates: Each draw usually requires a title date-down to ensure no mechanic’s liens. $100–$200 per draw, sometimes more.
• Inspections: Third-party or lender inspections per draw—$125–$250 each.

Common mistakes and how to avoid them

1) Assuming your HFA allows construction loans

• Fix: Read the HFA lender manual or buyer guide and ask a loan officer who has closed OTC+HFA in your state. Don’t rely on a generic approval for “new construction.”

2) Trying to use DPA for build-period costs

• Fix: DPA is for down payment and eligible closing costs at closing—not for interest reserves, contingency, or out-of-contract upgrades. Budget cash for the build.

3) Banking on reimbursement

• Fix: If money leaves your bank before the OTC closing (e.g., builder deposits or land improvements), don’t expect DPA to reimburse. Structure deposits as part of the contract funded at closing whenever possible, or accept that they’re separate sunk costs.

4) Builder ineligibility

• Fix: Confirm the builder’s experience, licensing, insured status, and acceptance by the lender’s construction department before signing. Get their package to underwriting early.

5) Breaking IPC limits with big builder credits

• Fix: Keep builder credits within agency caps and use them strategically for allowable fees. If you need more support, consider a price reduction instead of oversized credits.

6) Thin specs leading to a low appraisal

• Fix: Provide robust, detailed specifications. If you’re building semi-custom, include model match comps and upgrades list to help the appraiser.

7) Rate lock timing mistakes

• Fix: Don’t lock too early without contingency for build delays. If your HFA allows lock at reservation, coordinate target dig date, permitting timeline, and material lead times.

8) Overlooking occupancy and forgiveness periods

• Fix: If your DPA second is forgivable over, say, 3–10 years, plan to stay put. Moving early can trigger repayment.

Advanced strategies that stay compliant

• Leverage land equity thoughtfully
• If you already own the land, its value can satisfy your minimum investment under FHA or strengthen your LTV for VA/USDA. Ask your lender whether they’ll use current appraised value or recent purchase price—the answer changes your cash strategy.

• Stack builder credit + DPA without tripping limits
• Keep builder credits within IPC caps. Use DPA first to meet minimum investments and key closing costs; use builder credits to fill the remaining eligible buckets.

• Consider Mortgage Credit Certificates (MCCs)
• Some HFAs offer MCCs that provide an annual federal tax credit (often 20–40% of mortgage interest paid, capped annually). For OTC, the MCC is issued at closing. It doesn’t provide upfront cash but can improve after-tax affordability.

• Use contingency the right way
• Lenders like to see a contingency in the budget. Don’t expect to fund it with DPA. Keep it in your cash plan. If unused at completion, great—you’ve got a cushion for landscaping or furnishings.

• Choose the right agency program per property location and income
• USDA can be powerful if your property is in an eligible rural area and your income qualifies. VA is a win for eligible veterans with 100% financing. FHA is flexible on credit and documentation with predictable CLTV stacking for DPA.

State-by-state reality check

I’ve seen everything from HFA programs that enthusiastically support OTC + DPA to states that flatly decline construction deals of any type. Because policies change, use this filter:

• Does the HFA’s current lender manual explicitly allow single-close construction with DPA?
• Are specific first mortgage types listed as eligible (FHA/VA/USDA)?
• Is there a published list of lenders approved for construction-to-permanent?
• What’s the max lock period, and how do extensions work?
• Are there special overlays for new construction (e.g., max acreage, septic/well rules, builder approval steps)?

If any of those answers are fuzzy, press for written confirmation. One phone call is not a policy.

What your file needs to sail through underwriting

• Fully executed fixed-price construction contract with line-item budget and allowances.
• Builder package: license, insurance, W-9, experience, references, and—often—past project portfolio.
• Plans and specs: architectural drawings, materials, mechanicals, energy features.
• Appraisal order form and supporting comps (your agent or builder can help).
• Land docs: deed, HUD-1/CD for purchase, payoff if financed, current survey if available.
• DPA approval: reservation confirmation from HFA portal, terms of the second, grant letter if applicable.
• Homebuyer education certificate.
• Income and asset documentation: W-2s, paystubs, tax returns as needed, bank statements with clear sourcing of funds.
• Insurance binder for builder’s risk or course-of-construction coverage.
• Title company alignment on draw protocols and date-down fees.

Questions to ask your lender and HFA upfront

• Do you close HFA OTC loans with DPA in my state? How many have you closed recently?
• Which first mortgage types are allowed (FHA/VA/USDA/conventional) with construction?
• What DPA forms (grant, forgivable second, repayable second) can be layered with OTC?
• What’s your longest rate lock and current cost for a 9–12 month lock?
• How do you treat land equity (current appraised value or original purchase price)?
• What are the typical draw schedules and inspection costs?
• Can my builder meet your eligibility requirements? Will you vet them now?
• Are change orders allowed and how are they funded?
• What’s the plan if construction runs long and my rate lock expires?
• What occupancy or forgiveness periods apply to the DPA second?

Practical budgeting worksheet (rough template)

• Purchase price or total acquisition cost: $__________
• Appraised as-completed value: $__________
• First mortgage LTV target: ________%
• DPA expected amount: $__________ (type: grant/forgivable/repayable)
• Builder credit (ensure compliant): $__________
• Estimated closing costs (lender + title + escrow): $__________
• Prepaids (taxes, insurance): $__________
• Construction interest (months x avg balance x rate): $__________
• Inspections and title updates: $__________
• Appraisal(s): $__________
• Insurance (builder’s risk): $__________
• Reserves required: $__________
• Cash cushion/contingency: $__________

Then map sources:

• DPA applied to: down payment $______, closing costs $______, prepaids $______, principal reduction $______
• Land equity credited: $______
• Borrower cash at closing: $______
• Borrower cash during build: $______

The goal: verify you have cash for the build period and the structure keeps CLTV and IPCs within limits.

A quick word on lender overlays

Even if the HFA and agency allow your plan, individual lenders may layer stricter rules. Common overlays:

• No self-builds, even if agency would allow in rare cases.
• Higher minimum credit scores than agency minimums.
• Larger reserves for self-employed borrowers.
• Builder must be in business X years with references.
• No manufactured homes with construction programs (varies).

Always ask for overlays in writing so you can design your project accordingly.

Reality checks and “tell it like it is” advice

• Single-close OTC with DPA is niche lending. Not every branch or loan officer knows how to do it. If your LO is learning on your file, expect delays. Ask for a construction specialist and the HFA coordinator on the lender side to be looped in early.
• Don’t chase the absolute lowest rate at the expense of a lender who can actually execute OTC + HFA. An unclosed loan with a low quoted rate is worth zero.
• Your builder’s cooperation matters. Builders who balk at lender inspections, lien waivers, or draw paperwork slow everything down and cost you in interest and lock extensions.
• Budget overruns are your problem unless you’ve negotiated otherwise. DPA won’t bail out overruns. Keep your specs tight. Add a 5–10% contingency.
• Plan your move-in date with margin. Weather, supply chain, utility hookups—something will push the timeline.

FAQ lightning round

• Can I use HFA DPA to pay my builder deposit before closing? Usually no. DPA funds at the mortgage closing, not before. If a deposit is required, try to structure it to be paid out of the first draw at closing, or treat it as separate cash you won’t get reimbursed.

• Can I get cash back at permanent conversion if we underspend? Not from DPA. Any surplus typically reduces principal or remains undrawn. You can sometimes get unused borrower-paid contingency back if it was held outside loan funds, but not DPA dollars.

• Can I combine an MCC with OTC + DPA? Many HFAs allow this. It won’t provide cash up front, but the annual tax credit can meaningfully reduce net housing cost. Confirm issuance timing with the HFA.

• What if the appraisal comes in below total costs? You can put in more cash, use land equity if available, adjust specs, or seek a reconsideration with better comps. If none of that works, reassess the budget.

• Can I use sweat equity? USDA has provisions for sweat equity in some contexts, but with an HFA OTC it’s rare and tightly controlled. Expect professional GC labor and documented costs.

• Will a gift from family play nicely with HFA DPA? Often yes, if properly documented. Gifts can supplement DPA for closing costs and reserves. Make sure the HFA and first mortgage guidelines permit it and that gifts aren’t from interested parties like the builder.

A simple compliance framework to keep you out of trouble

• Source: DPA must come from the HFA or a permitted provider, not funneled by a party to the transaction.
• Timing: DPA funds at the OTC closing—not mid-construction—unless your HFA has a documented exception.
• Use: Apply to down payment and eligible closing costs; never to non-eligible items or as cash back.
• Limits: Stay within CLTV and IPC caps; respect income and price limits; complete buyer education.
• Paper: Keep documentation clean—no last-minute unverified deposits or undocumented upgrades.
• Team: Work with a lender and builder who have closed OTC + HFA deals. Experience saves months.

A brief case study from the field

A couple building a $520,000 home in a suburban county hoped to use a state HFA DPA of 4% forgivable second with an FHA OTC loan. They already owned the lot, bought 3 years prior for $95,000, current appraised land value was $120,000. Their first lender said DPA “doesn’t work with construction,” and pushed them to a two-close plan that would have burned $8,000 in extra fees and forfeited DPA benefits.

We moved them to an HFA-approved OTC lender with a 9-month lock. Land equity covered the FHA minimum investment. DPA covered $13,800 of closing costs and prepaid items. We kept builder credits to 3% to avoid IPC issues after rolling in some energy-efficient upgrades. They brought cash only for interest during construction, inspections, and a 5% contingency they never touched. Conversion to permanent was automatic after the CO, and their DPA forgiveness clock started. They saved around $14,000 net compared to the two-close path and avoided several compliance headaches.

The difference wasn’t a secret program; it was matching the right structure to the right HFA and getting the sequencing right.

Wrap-up: your action plan

• Verify your state HFA allows single-close OTC with DPA. If yes, shortlist lenders who actually close them.
• Decide early: OTC single-close or alternative path. If DPA is important, OTC is almost always the way to go.
• Choose a builder who is willing and able to work with lender draw requirements.
• Build a cash plan for everything DPA won’t touch: interest during construction, inspections, reserves, and true contingencies.
• Lock strategically with enough time and a realistic timeline. Budget for extensions just in case.
• Keep your specs detailed and your changes minimal.
• Protect compliance: no cash back, stay within CLTV and IPC limits, and complete your education course.

If you follow that playbook, you can absolutely use state HFA down payment assistance with a construction loan—and do it cleanly. The key is making the structure do the heavy lifting so the rules line up from the start, not trying to bolt DPA onto a construction plan after the fact.