February 19, 2018

Vimeo Channel YouTube Channel

What Are The Differences Between FHA Construction Loans And Other FHA Home Loans?

What Are The Differences Between FHA Construction Loans And Other FHA Home Loans?

What are the basic differences between FHA One-Time Close construction loans and other types of FHA mortgages? Borrowers should understand the basic differences and how they will affect your transaction.

FHA One-Time Construction Loans Have Different Appraisal Requirements

When an FHA loan applicant wants to purchase a home that is considered “existing construction”, which has been built for at least a year or more with at least one owner, the appraisal process happens as a condition of loan approval to insure the property meets minimum FHA standards.

When you apply for an FHA One-Time Close construction loan, also known as an FHA construction-to-permanent loan, an inspection is required to insure the property meets minimum standards. HUD 4000.1 explains what the inspection requirements are for New Construction properties broken down into the nature of the property:

Proposed Construction

The lender must obtain one of the following:

-copies of the building permit and Certificate of Occupancy (or equivalent);

-three inspections (footing, framing and final) performed by an FHA Roster Inspector on form HUD-92051, Compliance Inspection Report (for Modular Housing, footing and final only);

-three inspections (footing, framing and final) performed by the local authority with jurisdiction over the Property (for Modular Housing, footing and final only); or

-a 10-year warranty and final inspection issued by the local authority with jurisdiction over the Property or an FHA Roster Inspector.

Under Construction

The lender must obtain:

-copies of the building permit and Certificate of Occupancy (or equivalent); or

-a 10-year warranty and final inspection issued by the local authority with jurisdiction over the Property or an FHA Roster Inspector.

FHA One-Time Close Construction Loans Require A 10-Year Builder’s Warranty

A 10-year warranty is one of the items mentioned in the lists above for inspections that is a requirement and a condition of loan approval for FHA construction-to-permanent loans (AKA FHA One-Time Close construction loans). A warranty is required of new construction FHA loans, but not for the purchase of existing construction properties.

What exactly is a ten-year builder’s warranty? HUD 4000.1 defines it as follows:

“Ten-year warranty refers to an agreement between the Borrower and a plan issuer which contains warranties regarding the construction and structural integrity of the Borrower’s dwelling securing the FHA-insured Mortgage. The plan must be a HUD-accepted insured ten-year protection plan.”

FHA One-Time Close Construction Loans May Feature Higher FICO Score Requirements

Depending on the lender, you may find FHA One-Time Close FICO score requirements to be higher than for other types of FHA mortgage loans. Construction loans are a larger investment and a bigger risk for the lender; stricter credit history requirements may apply for this type of home loan.

Some participating lenders may not allow One-Time Close mortgages for homes that are not “stick-built”.  A stick-built home is the type of house building project you might expect-a home built from the ground up including pouring a new foundation, etc. A non-stick built home could be a manufactured home, mobile home, etc.

We have done extensive research on FHA One-Time Close mortgages and have compiled a list of 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.

Your response to onetimeclose@fhanewsblog.com authorizes FHANewsblog.com to share your personal information with a licensed mortgage lender in your area to contact you.

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?

5. 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.

Bruce Reichstein - Staff Writer

By Bruce Reichstein

February 7, 2018

Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.

Connect with Bruce:

 

Browse by date:

About FHANewsBlog.com
FHANewsBlog.com was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

5850 San Felipe Suite #500, Houston, TX 77057 281-398-6111.
FHANewsBlog.com is privately funded and is not a government agency.

Share This