There are various loan types and programs available for homebuyers. One such is the FHA Loan Program. The Federal Housing Administration insures FHA-Insured Loans. If a borrower defaults on a loan and the house isn’t worth enough for the debt to be repaid through foreclosure, the FHA will compensate the lender for a percentage of the loss.
The FHA Construction loan, however, allows borrowers to take out a single loan allowing them to buy land, build their home from scratch, as well as finance their permanent mortgage. This is known as a three-in-one mortgage called the ‘FHA One Time Close Construction loan’. These loans are also government-backed by the Federal Housing Administration; however, the requirements for this program can be stricter than for traditional FHA loans.
As of 2022, these are the updated FHA one-time-close construction loan requirements which apply to the borrower, property, and contractor.
Borrowers must be able to provide a down payment of at least 3.5%.
They must have a credit score of 620 or higher.
Debt-to-income ratio (DTI) must be acceptable for FHA loan guidelines and can be as high as 56%.
Additionally, all FHA borrowers are required to pay mortgage insurance premiums (MIP) – this protects the lender in case of default.
As for the chosen property, the loan amount must not exceed FHA loan limits and cannot exceed the property county’s maximum loan limit.
The property must also be eligible. Eligible homes include single-family homes, modular, and manufactured homes. Only single unit homes are permissible with the FHA construction loan program, and the home’s intended use must be a primary residence.
Lastly, the FHA must approve the chosen contractors. Contractors are all required to have the necessary licensure required by their state, general liability insurance, and at least two years of experience in constructing homes.
Meanwhile, keep in mind that loan interest rates for an FHA construction-to-permanent loan can be higher than for other types of FHA loans. HomeLander Mortgage offers the one-time-close construction loan.
Builders may request draws as the work is done. As work is completed, the contractor is paid on a draw schedule set before closing.
Once the home is completed, the lender will convert the construction loan to the permanent mortgage at the interest rate that was locked at the time the loan closed, before construction started.
For more information on how the process works, please visit HomeLanderMortgage.com. HomeLander Mortgage specializes in these types of loans and is able to navigate the process. Schedule a call to begin the process at www.homelandermortgage.com
