We were initially confused by the "new construction" term as well. USDA was our only option for a mortgage and we really wanted to build. We quickly found out from lenders that a construction loan was not possible. We did however find a custom builder who was willing to carry the cost of construction, essentially building a spec home that we would purchase upon completion. In the end we decided that it was a little beyond our price range and we were very concerned about interest rate fluctuations during construction, since we couldn't lock in until the house was nearly completed. We bought an existing home. It seems to me that you really jumped the gun in this case, spending money before you were assured of having the financing. That isn't USDA's fault.
