June 27, 2024
Borrowers sometimes assume things about home loan programs that aren’t entirely accurate.
In the same way some assume that FHA single-family home loans can be used to buy an investment property (they cannot) or that the FHA loan program requires you to be a first-time home buyer, there are flawed assumptions about the kinds of home you can buy with an FHA mortgage and the acceptable uses of these home loans.
FHA Loans To Build A Home
The FHA One-Time Close construction loan is what borrowers choose when they want to build a home from the ground up. These FHA mortgages also allow land purchase with the loan if you don’t already have it to build on.
FHA Loans Can Be Used To Install A Home
FHA loans can be used to purchase manufactured housing, including options like modular or mobile homes.
You can use an FHA Title I loan to buy the house itself plus the land on which the home will be placed. Borrowers may also choose to have a manufactured home delivered from the seller to the land and assembled there.
You can also consider renting a lot rather than buying one to build the house on. According to HUD.gov, those who choose this option should know that the land lease must be three years or longer for the first contract.
FHA Loans For Home Improvement
FHA loan options include the FHA 203(k) rehabilitation mortgage, which borrowers can use to buy a fixer-upper home.
FHA cash-out refinances can be used to pay for some projects in the home the FHA 203(k) program might not permit, such as luxury additions like a pool or barbecue pit.
203(k) loans can’t be used to install those, but there are no such restrictions on cash-out refinance loans. Be sure to compare closing costs and other expenses before deciding on one loan or the other.
Take Equity Out Of The Home In Cash
Refinancing a home loan with an FHA cash-out refinance loan is one way to cash out equity in your home.
You’ll need a minimum loan-to-value ratio of 80% or better to be approved for the refinance.
The longer you own the property and pay the mortgage, the more equity may become available. Equity builds up over time, and lenders tell new homeowners not to apply for cash-out loans until they have built equity and made a number of payments.
There are alternates. FHA reverse mortgages are designed for borrowers 62 or older. If you own the home outright or are close to paying off the mortgage, you may qualify for an FHA reverse mortgage. These loans, also known as FHA Home Equity Conversion Mortgages, do not require monthly payments.
That is because the HECM loan is due when the owner dies or stops using the home as their home address or primary residence. FHA HECM loans offer cash back to the borrower, which is calculated based on the value of the home and other variables.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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