How do you get an FHA construction loan? This question isn’t as simple as it sounds, but those who want to have their new home built for them instead of purchasing existing construction properties will find that FHA mortgages for new construction are possible with a bit of extra effort.
The first step toward getting an FHA construction loan is to find a participating FHA lender willing to offer them. Not all FHA lenders will offer construction loans, so you’ll need to shop around to find the right lender for you. There are two basic types of FHA construction loans-a “traditional” construction loan, and an FHA One-Time Close loan.
Your participating lender may offer one, or both types-it’s best to discuss this as early in the process as possible since One-Time Close FHA mortgages have different requirements than the traditional construction loan.
The basic difference between these two types of FHA construction loans is that One-Time Close loans have (as the name implies) a single loan and one closing date. The other type of construction loans involve a short-term loan that covers the construction period, and then the usual long-term mortgage loan which covers the cost of the home itself.
One-time close loans have a single transaction for the entire process. This eliminates the borrower’s need to qualify for two different loans, which could be riskier in some cases if the borrower’s credit position changes between the two loans. One-time-close loans may feature different credit requirements, and additional lender standards may apply.
That means that above and beyond FHA loan minimum requirements for FICO scores, credit history, etc. your lender may have higher FICO, credit history, employment, and/or other standards. The FHA loan program minimums are just that-minimum requirements.
For both types of FHA construction loans, you’ll find that the down payment rules, occupancy standards, escrow account requirements and other areas are similar. It is a very good idea to give yourself more time in the preparation process for new construction loans as you may wish to save up additional funds for any required compliance inspections, research construction timelines and typical start-to-close times, etc.
Talk to a loan officer about how to set realistic expectations for how long the entire process may take. Borrowers who need a new home right away may wish to reconsider a construction loan option, but for those with the time to wait out the process, this is a very good alternative to house hunting for a typical suburban home.