Navigating FHA Loans for a Construction or Renovation Project

August 23, 2024

The Federal Housing Administration has residential loans for those who need to buy and remodel a home, or improve an existing one. Which is right for you?

FHA Construction Loans finance both the cost of the land purchase where required and the construction of a new home, consolidating them into a single mortgage.

FHA Rehabilitation Loans cover the purchase (or refinance) of an existing home along with remodeling expenses.

There are certain benefits for these FHA loans compared to some of their conventional equivalents:

• Potentially Lower Down Payments
  FHA loans have lower down payment requirements for qualifying borrowers compared to conventional loans. You can also include some closing costs into the loan amount.
• Flexible Credit Requirements
  FHA loans are more flexible for some borrowers. If you have credit issues in your past, an FHA loan may be right for you.
• Competitive Interest Rates
  FHA loans are government-backed, which allows the lender to offer a lower rate than some conventional mortgages.

Understanding FHA One-Time Close Construction Loans

FHA One-Time Close construction loans streamline the process of building your dream home:

• One-Time Closing
  A single loan closing is scheduled before construction begins, simplifying paperwork and reducing closing costs.
• Draws During Construction
  Funds are disbursed in phases as construction advances. Loan funds do not pass to the borrower.
• Loan Conversion
  When construction ends, the loan converts into a standard FHA mortgage.

Eligible Construction Projects

• Building a new home on land you own or purchase
• Constructing a manufactured or modular home
• Major renovations, additions to an existing home. These should result in an increase in value.

Understanding FHA Rehabilitation Loans

FHA rehabilitation loans enable you to transform an older home into your desired living space. 

• Combined Loan
  The loan amount encompasses both the home's purchase price and the estimated renovation costs.
• Escrow Account
  Renovation funds are held in escrow. These funds are distributed as the construction project progresses.
• Eligible Repairs
  Repairs must enhance the home's livability, safety, or energy efficiency.

Eligible Rehabilitation Projects

• Modernizing outdated systems in the home
• Addressing any structural damage
• Remodeling kitchens or bathrooms
• Incorporating energy-efficient features. These may include solar panels, storm doors and windows, etc.
• Other work approved by the lender and acceptable under FHA loan rules in HUD 4000.1

Get More Help and Information

For well-informed FHA loan decisions, research the Mortgages section of the Consumer Financial Protection Bureau, and review the Federal Trade Commission official site to learn what the latest mortgage issues and concerns are for buyers. You can also consult these resources:

• National Association of Home Builders
  Information about building codes, permits, and regulatory requirements.
• Better Business Bureau (BBB)
  Use when researching and reviewing local builders and service providers.
• Angie's List
  Use this resource to view reviews of local service providers, including builders.
• Local Home Builders Associations
  Use their online directories to learn more about local service providers.

Speak to a participating FHA lender to learn more about how these loans may work for you.

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.

Contact Us: Send Us Your Request – Spam Safe

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.