FHA Construction Loan – Apply and Get Approved Today

What is an FHA Construction Loan?

An FHA construction loan enables homeowners to construct homes with funds that are released in phases. The entire process involves regular inspections undertaken periodically before money is disbursed to borrower through an escrow account. And prior to release of remaining loan amount, there will be a final inspection of the house being constructed for ensuring that it is compliant with FHA housing standards. To qualify, applicants must have a credit score of over 680.

How FHA Construction Loan Works?

With FHA construction loan, eligible homeowners can purchase land and build homes. But there could be a cap on loan amounts disbursed. Typically, home buyers can buy land and construct a new house for loan amounts ranging from $ 271,000 to $750,000. Borrowers may be required to pay 3.5% down payment of the project estimate.

Closing costs and interest payments, while house is under construction, can be rolled into the loan amount. Besides, if probable applicant already owns a piece of land that has appreciated in value, FHA will give special credit for equity built up in the land. In such cases, lenders may not ask you to pay any down payment. To learn more, contact us online today!

Benefits of Getting FHA One Time Close Construction Loan

By obtaining approval for FHA one time close loan, homeowners can secure number of benefits as follows:

Equity built up in owned land can be used as down payment
Borrower doesn’t have to pay instalments during construction
The term “one time close” implies half of the overall closing costs
Down payment, if required, will be as low as 3.5% of project cost
Loans are also available for borrowers with credit score less than 680
Manufactured and modular homes could be eligible for the program
Locking into low fixed interest rate reduces risks of rate hikes
Contractor can get staged funding during the construction process
Fees and closing costs to be borne by contractor

Determine Your Eligibility to Get an FHA One Time Close Construction Loan

Applicant must have:

Minimum credit score requirement is 640
Maximum DTI ratio must be around 45%
No bankruptcy record during the last 2 years
No home foreclosure in the past 3 years
Credit collections must be less than $5,000 in the last 2 years
No tax liens or open judgements

How to Apply for FHA New Construction Loan?

To get FHA new construction loan for constructing new house, applicant must first find a FHA lender. There may be numerous factors which might impact borrower’s chances of getting approved for the loan apart from basic credit score requirements. Accordingly, two different situations are likely to emerge as under:

Construction to Permanent Loans:

(i) Applicant must have entered into an agreement with a licensed contractor for undertaking home construction or improvements in existing home. If borrower wants to undertake home construction activity on his own, he has to be licensed contractor.

(ii) Borrower must have purchased land 6 months before closing of the construction loan.

FHA 203(k) Home Renovation Loans:

Borrower must make sure that home improvements are undertaken and completed within 6 months of loan closing although some exemptions may be granted depending on the complexity of work involved. To know more, talk to an expert now!