A Federal Housing Administration (FHA) loan is the only home mortgage insured by the government in the USA. It is one of the largest construction mortgage insurers in the world and is part of the U.S Department of Housing and Urban Development (HUD). FHA provides mortgage insurance on loans given by FHA-approved lenders.
FHA is known for its low-cost down payments and credit score requirements more than any loan lender. They provide loans for buying a home, construction a new property, or rehabilitating an existing home.
This article discusses the features, types, and basic requirements to get an FHA construction loan.
The two main types of FHA construction loans are:
Here, the buyer obtains both a construction loan and a permanent mortgage at the same time. The FHA’s One-Time Close Loans are designed for buyers planning to build a new property. During the construction phase, only the interest needs to be paid. This then becomes a regular home loan, and it is closed at once. Once the construction is complete, the lender converts the construction loan to a permanent mortgage for 15 to 30 years.
This type of loan is designed for buyers purchasing an existing home. The loan is used for minor renovation works.
The criteria to obtain FHA construction loans are given in Table-1.
If one is planning to choose an FHA loan, it is essential to find a lender, builder, and contractor experienced with these unique types of FHA building plans as FHA demands additional paperwork and documentation before the loan approval.
A Federal Housing Administration (FHA) loan is the only home mortgage insured by the government in the USA. It is one of the largest building mortgage insurers in the world and is part of the U.S Department of Housing and Urban Development (HUD).
The two main types of FHA construction loans are construction-to-permanent loans or one-time close loans and 203(k) rehabilitation loans.
The benefits of FHA loans over conventional building loans are: 1. FHA building loans are accessible to individuals with credit scores as low as 500. 2. FHA demands a lower down payment (around 3.5 percent) than conventional building loans. FHA loan can be used to purchase a home or renovate or build a new property. 3.