March 21, 2018
What should you know about FHA home loans for houses, condos, and townhouses? There are plenty of issues to keep in mind including down payment requirements, appraisal rules, and special options.
FHA Loan Rules For Houses
The FHA loan handbook, HUD 4000.1, addresses home loans for new houses depending on their classification as existing construction, new construction, or proposed/under construction.
Borrowers who want to buy an existing construction home will be looking at property that has had at least one owner. Existing construction FHA loans require an appraisal and the borrower is required to make a minimum down payment of 3.5% of the adjusted value of the property unless the transaction requires more due to credit issues, identity-of-interest problems, etc.
New construction loans (such as the FHA One Time Close construction loans / Single Close Loans) are possible with an FHA mortgage.
These loans require higher FICO scores than mortgage loans for existing construction, but the results can be worth any extra time it takes to budget, save, and prepare for the loan application. An FHA construction home loan is technically available to either build a home from the ground up (“stick-built”) or for the assembly on-site of a manufactured or modular home.
However, you may find that FHA construction loans for non stick-built properties harder to find. Consider that in your search for a participating lender.
Buying a home with an FHA mortgage always means a new credit check, appraisal, and any required follow-up inspections as a result of that appraisal. Expect to put down a minimum of 3.5% of the adjusted value of the home unless you are applying specifically for an FHA 203(h) rehab loan in a federally declared disaster area; that is the only new purchase FHA mortgage that does not have a down payment requirement of 3.5%.
FHA Loan Rules For Townhouses and Condos
FHA loan rules for condo units (and yes, properties that appear to be townhouses but are organized under a condo project-style set of agreements and covenants) differ from new purchase loans for a few important reasons. One of those reasons involves the group ownership nature of condo projects.
Borrowers aren’t buying the entire building when applying for an FHA condo loan, they are buying a unit within the project. FHA loan rules for condo loans are designed to protect the borrower in several ways including a prohibition of restrictive bylaws in the homeowner/condoowners agreements the buyer must sign.
If the buyer cannot freely sell her property at any time under the condo owner’s association agreements, the property cannot be approved for an FHA mortgage loan. Do condo projects actually feature such requirements? Some still do. We’ll review that aspect of the home buying issue in part two.
Want More Information About One-Time Close Loans?
One-Time Close Loans are available for FHA, VA and USDA Mortgages. These loans also go by the following names: 1 X Close, Single-Close Loan or OTC Loan. This type of loan allows for you to finance the purchase of the land along with the construction of the home. You can also use land that you own free and clear or has an existing mortgage.
We have done extensive research on the FHA (Federal Housing Administration), the VA (Department of Veterans Affairs) and the USDA (United States Department of Agriculture) One-Time Close Construction loan programs. We have spoken directly to licensed lenders that originate these residential loan types in most states and each company has supplied us the guidelines for their products. We can connect you with mortgage loan officers who work for lenders that know the product well and have consistently provided quality service. If you are interested in being contacted to one licensed construction lender in your area, please send responses to the questions below. All information is treated confidentially.
OneTimeClose.com provides information and connects consumers to qualified One-Time Close lenders in an effort to raise awareness about this loan product and to help consumers receive higher quality service. We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.
Please note that investor guidelines for the FHA, VA and USDA One-Time Close Construction Program only allows for single family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes). You CANNOT act as your own general contractor (Builder) / not available in all States.
In addition, this is a partial list of the following homes/building styles that are not allowed under these programs: Kit Homes, Barndominiums, Log Cabin or Bamboo Homes, Shipping Container Homes, Dome Homes, Bermed Earth-Sheltered Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes, Tiny Homes, Carriage Houses, Accessory Dwelling Units and A-Framed Homes.
Your email to info@onetimeclose.com authorizes Onetimeclose.com to share your personal information with a mortgage construction lender licensed in your area to contact you.
- Send your first and last name, e-mail address, and contact telephone number.
- Tell us the city and state of the proposed property.
- Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good – (640-679), Fair – (620-639) or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.
- Are you or your spouse (Co-borrower) eligible veterans? If either of you are eligible veteran’s, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio VA will allow – there are no maximum loan amounts as per VA guidelines. Most lenders will go up to $1,000,000 and review higher loan amounts on a case by case basis. If not an eligible veteran, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.
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.
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