Facts You Need to Know About FHA Construction Loans
Facts about FHA Construction loans you should know include the ability to build on your own land or purchase land to build upon; if you are going to build on land you already own it should be owned for no longer than six months.
The “six month rule” trips some borrowers up because they are not sure when the six month time period begins. FHA loan rules say the land must be owned for no longer than six months at the time the FHA loan case number is assigned.
FHA loan rules for Construction Loans also include the same requirement for an Up-Front Mortgage Insurance Premium (UFMIP) as for existing construction homes.
If you want an FHA One-Time Close loan to build on your lot (with a low 3.5% interest rate for qualified borrowers--see below) you will have to pay up front (as part of closing costs) or finance the UFMIP in its’ entirety.
FHA loan FICO score requirements are no different for construction loans than for any other FHA mortgage. But your lender may have different standards.
Some participating FHA lenders want a slightly higher credit score range to qualify for a construction loan. But in general terms, both the down payment requirement and the FICO score rules are identical (in the FHA loan rulebook, not your lender’s).
Borrowers should know that construction loan rules in the FHA handbook say the borrower can act as the general contractor, but you will find lenders can be reluctant to agree to this. It’s best to assume you will be required to hire a licensed contractor.
It’s also important to know that for construction loans, FHA loan rules do not permit cash back to the borrower in excess of $500 except in the form of a refund for something paid up front that is later included in the loan amount.
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), 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 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 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 allow
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- 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 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 $750,000 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.
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