The FHA single family loan handbook tells us that FHA home loans are for a variety of different types of purchases including existing construction, “new construction” which means a home recently built but never occupied by an owner, and “proposed construction” loans which allows the buyer to apply for a loan to fund both the construction phase and the “permanent” phase of the mortgage.
How do FHA construction loans differ from new purchase loans? Aside from the obvious (new purchase loans for existing construction move faster than construction loans do thanks to the lack of a construction phase for the existing construction loan) there are some important considerations to think about when contemplating your construction loan options.
Is An FHA Construction Loan Right For Me?
If you need to get into a new home sooner instead of later (job relocations, increases in family size situations, etc), an FHA construction loan might be tricky depending on your time constraints. But those who are able to wait out the process, (which may include a length of time devoted to finding a builder who is already FHA approved or who can become FHA approved) a construction loan might be a good option.
FHA construction loans allow the borrower more options for the new home, which is the trade-off for the extra time spent waiting for the home to be completed. The timing of your need to occupy the new home will play an important part in your decision to build.
Why Should I Get An FHA Construction Loan?
Some borrowers want to know why they should choose the FHA construction loan instead of a conventional mortgage. Lower interest rates and down payment issues aside, the FHA One-Time Close construction loan option is something to consider.
One-time close loans eliminate the need for two loans and two sets of loan approvals. Under one-time close construction loans, the borrower is approved for a single loan at the beginning of the process with no second credit check and other steps required of the two-close type construction loan.
Be Sure To Ask
Remember that not all participating lenders offer an FHA construction loan, so be sure to ask any potential lender if the FHA construction loan is possible and whether there’s a one-time close option available to you.
You may find that participating FHA lenders have higher FICO score requirements for one time close mortgages. You may find that for FHA mortgage loans in this category, borrowers with two FICO scores will have their lower FICO score used for loan approval.
FHA construction loans require more paperwork than new purchase loans due to the nature of the mortgage. Money has to be paid out to contractors, inspections and appraisals happen at different times than they might for an existing construction loan, etc. The FHA construction loan process may be more complex than a new purchase loan for a property that already exists, but for many borrowers, the extra effort is definitely worth it to get the specific type of new home desired.
We have done extensive research on FHA One-Time Close mortgages and spoke directly to the licensed lenders for most states. These are qualified mortgage loan officers who work for lenders that know the product well. Each company has supplied us the guidelines for their product. If you are interested in being contacted by one licensed lender in your area, please respond to the below questions to save time. All information is treated confidentially.
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Please note that the FHA One-Time Close Construction Program only allows for single family dwellings (1 unit) – and NOT for multifamily units (no duplexes, triplexes or fourplexes).
1. Send your first and last name, e-mail address, and contact telephone number.
2. Tell us the city and state of the proposed property.
3. Tell us your credit score and/or the Co-borrower’s credit score, if known. 620 is the minimum qualifying credit score for this product.
4. Are you or your spouse (Co-borrower) eligible veterans? If either of you are eligible veteran’s, the down payment is $0 up to the maximum VA lending limit for your county. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.