Check out an FHA Construction Loan
If you wish to construct a new home, house construction loans are available to borrow from many commercial FHA lenders and mortgage brokers. However, these loans can be difficult to obtain compared to other conventional loans.
For people working hard to get approved for a FHA one-time close, the US (FHA) Federal Housing Administration offers financing that becomes a permanent long-term mortgage with easier credit requirements.
The FHA Construction to Mortgage Mortgage program provides a short-term construction loan that turns into a long-term permanent loan after you finish building your home. The loan has a unique mortgage closure that occurs when the loan is secured, before the start of construction, which reduces the fees you must pay. The short-term portion of these loans is designed to facilitate the financing of actual construction, valued at the cost of construction. The longer term part looks a lot like a traditional FHA mortgage.
The FHA does not issue the loan itself; It simply ensures that these loans are made by traditional lenders.
Who builds the house?
As part of an FHA construction loan, the builder must be an authorized contractor licensed by the lending institution. It is possible for the mortgagor to be the contractor on the project if he is an authorized general contractor.
The approval process can take anywhere from two to twelve weeks. The builder must often show the applicable licenses, two years of the tax return and proof of business.
What are the advantages of an FHA construction loan?
An FHA construction loan provides a home buyer with the same key benefits as other types of FHA loans. These include the following:
- Reduced your down payments as less as 3.5% in many Terms.
- Payment interest only during the loan construction phase.
- Easier Qualifications (for those with a credit score of 620 or higher).
- The higher debt-to-income ratio may be acceptable.
Key Features of an FHA Construction Loan
There are several key differences in these loans compared to others. For example, the borrower must buy the land at the end of the loan or own the land for six months or less at the time of loan application. After closing, the lender will disburse the loan funds over time through an escrow account, with the initial payment typically used to purchase land.
An essential feature of these FHA Constructions loans. In other types of mortgages, a borrower must secure an initial loan, FHA one-time, and then construction begins. Once construction is complete, a traditional loan requires the buyer to obtain a new loan, which again passes the entire loan approval process, for the permanent home loan. This not only takes a lot of time but doubles the closing costs of the buyer.
With an FHA mortgage for permanent construction, the buyer only goes through the approval process once. Once the builder has completed the construction of the house, a thorough inspection is done to ensure that the property meets a specific term and that the city will provide a certificate of occupancy. Once this happens, the construction loan will then be transformed into a long-term permanent loan that the consumer will continue to pay until the loan is paid in full.
Want to know how much you will pay each month on your mortgage? Use the Bank’s calculators to find out.
When does financing for these loans begin?
The buyer will see the depreciation start 60 days after the end of the final inspection of the construction is completed or after the issuance of a certificate of occupation. This means that the first payment is due that month.