July 17, 2017
Is there an FHA construction loan? Let’s look at what the FHA single family home loan handbook (HUD 4000.1) says about these transactions:
“FHA offers various mortgage insurance programs which insure approved Mortgagees against losses on Mortgages. FHA-insured Mortgages may be used to purchase housing, improve housing, or refinance existing Mortgages.
Purchase/Construction to Permanent
The Borrower may finance the purchase of an existing one- to four-unit residence, and may also finance construction of a one- to four-unit residence through a Construction to Permanent Mortgage. Properties to be acquired through an unrecorded land contract must be treated as a purchase.”
That information is found on page 130 of HUD 4000.1. But some borrowers may be confused by this, having approached a lender only to be told “we don’t do FHA construction loans” specifically or “we don’t do construction loans” in general.
In the wake of the mortgage crisis of 2008, that situation was far more common than it might be today, but even today some lenders don’t always offer every single kind of home loan product available through the FHA loan program.
So the first step in getting an FHA construction loan is to locate a participating lender who is willing to work with you on that particular type of FHA mortgage.
Some lenders may offer a “standard” construction loan (which can feature two closing dates, one for the construction and one for permanent loan) or an FHA “One Time Close” loan which features only one closing date.
Be sure to ask your loan officer about the specifics of the FHA construction loan as these are quite different that new purchase loans for existing construction or for “new construction” homes that have not been occupied yet and have been complete for a short time.
FHA construction loans require escrow and other considerations including one very important step; builder verification. Your builder must be approved or get approved to work on the project funded by the FHA mortgage loan. This step may sound more daunting than it really is, depending on circumstances, but it’s important to build in the extra time for this consideration.
An FHA construction loan isn’t right for all home buyer needs, but for those who are able to manage the decision making process and wait out the construction period, an FHA construction loan is a good option to consider if you can’t find an existing construction home that works for you, or you have a specific type of construction you prefer.
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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