FHA Construction Loans: Why Your Lender Matters

April 24, 2018

Why does your chosen lender make a big difference when it comes to how your FHA One Time Close construction loan or any other type of mortgage product make such a difference? Can’t you apply at any participating FHA lender to get what you need?

The answer isn’t as simple as yes or no, and the reasons for that have a lot to do with your participating lender and their standards and requirements.

FHA loan rules governing home loans and how they can be used may be found in HUD 4000.1, the FHA Single Family Home Loan Handbook. There are provisions for FHA forward mortgages such as the One Time Close Construction loan, as well as mortgages for existing construction.

There are also FHA condo loans, mobile home loans, rehab mortgages, and loans for disaster victims to repair or replace property damaged in federally declared disaster areas.

But not all participating FHA lenders offer all FHA loan products. It’s up to the lender to decide which products to offer and what standards to approve loans are. One reason why choosing your lender carefully is so important?

Lender standards for loan approval are not identical; depending on where you go, higher FICO scores may be required, there may be escrow issues, or you may need to get a flood zone determination for your new home.

Some lenders won’t allow FHA mobile home loans. In other housing markets FHA condo loans may not be offered. Some of this may be a simple supply-and-demand equation; in a housing market dominated by suburban homes, the condo mortgage question may rarely get asked.

In a housing market with few or no mobile homes, the FHA mobile home loan may not be offered. And in some cases, the lender may simply decide that a certain kind of mortgage simply isn’t in that company’s interests.

Shopping around for the right lender may be just as important as shopping for the home itself. You’ll need to know the lender can issue the kind of loan you need, and what the lender’s procedures are for that type of mortgage.

For FHA construction loans, your lender should tell you about requirements for down payments, escrow, completion times, applicable FICO score ranges for construction loans, and what to generally expect from a loan process that can certainly differ from buying an existing construction home the borrower moves into right away after closing time.

Some lenders may not allow more than 1 unit stick-built homes with their FHA construction loans, others may allow up to four units, permit modular or manufactured housing, etc. You will need to discuss those requirements with a loan officer to see what is possible in that housing market.

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FHA, VA, and USDA: One-Time Close Loans


Want More Information About One-Time Close Loans?

We have done extensive research on the FHA (Federal Housing Administration) and the VA (Department of Veterans Affairs) 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 by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.

FHA.com provides information and connects consumers to qualified One-Time Close lenders 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 and VA One-Time Close Construction Program only allows for single family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes). In addition, the following homes/building styles are not allowed under these programs, including but not limited to: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes, Dome Homes, Bermed Earth Sheltered Homes, Tiny Homes, Accessory Dwelling Units, or A-Framed Homes.

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Please send your email request to [email protected] which authorizes FHA.com to share your personal information with one mortgage lender licensed in your area to contact you.

1. Send your first and last name, e-mail address, and contact telephone number.

2. Tell us the city and state of the proposed property.

3. 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.

4. Are you or your spouse (Co-borrower) eligible veterans? If either of you are eligible veterans, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio per VA will allow – there are no maximum loan amounts as per VA guidelines. Most lenders will go up to $1,500,000 and review higher loan amounts on a case-by-case basis. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.