FHA One-Time Close construction loans feature a single loan application and closing date for both the construction phase of the loan and the “permanent” portion of the loan. Like other FHA mortgages, an appraisal is required on the property to be secured by the mortgage.
In general, FHA loan appraisal requirements include the following guidelines on the timing, as found in HUD 4000.1, the FHA loan handbook:
“The effective date of the appraisal cannot be before the FHA case number assignment date unless the Mortgagee certifies that the appraisal was ordered for conventional lending or government-guaranteed loan purposes and was performed pursuant to FHA guidelines.” While this may not normally be an issue for construction loans given the timing of the appraisal, another portion of the same section of the FHA appraisal rules should be carefully heeded:
“The intended use of the appraisal must indicate that it is solely to assist FHA in assessing the risk of the Property securing the FHA-insured Mortgage. Additionally, FHA and the Mortgagee must be indicated as the intended users of the appraisal report.”
That means that the appraisal is not, even on a newly constructed home, intended to be anything close to a home inspection or a seal of approval. Borrowers should consider paying for the optional home inspection (which is arranged by and paid for by the borrower) to insure that the quality of the completed work is as expected.
There are things an FHA appraiser needs to complete the appraisal process on a new construction property. The list of “standard” items includes the following:
-a complete copy of the executed sales contract for the subject, if a purchase transaction; the land lease, if applicable;
-surveys or legal descriptions, if available;
-any other legal documents contained in the loan file;
-a point of contact and contact information for the Mortgagee so that the Appraiser can communicate any noncompliance issues.
New construction appraisals require the following additional steps:
“When performing an appraisal for a sales transaction or on New Construction, the Appraiser must also review and analyze the following:
-the complete copy of the executed sales contract for the subject; and
-documents related to New Construction, including plans, specifications, and any exhibits provided that will assist the Appraiser in determining what is to be built, or, if now Under Construction, what will be built when finished;
-report the results of that analysis in the appraisal report.”
FHA appraisals for One-Time Close construction loans may, like the appraisals for existing construction homes, require corrections, repairs, or other fixes. A compliance inspection may be required to determine if the corrections were made according to the specifications required by the appraiser.
Borrowers should anticipate having to pay for compliance inspections the same way they would if they were purchasing an existing construction home.
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.