FHA New Construction Loans

Key Takeaways

Timeframe

It generally takes between 10 and 12 months to build a new home. This includes the initial planning a consenting process. The building itself takes around 6 to 8 months from the beginning of the groundbreaking to handing over the key

Lenders Require a Bridge Loan that incurs additional cost

  • What is a Bridge Loan: A short-term loan used to bridge the gap when you want to buy something, but you’re waiting for funds to become available from the sale of something else.
    • You typically need a 20-40% deposit for a bridging loan. It is possible to get a bridging loan without a deposit (a 100% bridging loan), but you’ll need other assets in the background to secure the loan against, and more stringent criteria and higher costs could apply.

Included Financing:

The construction, lot, and permanent mortgage with one single loan

A construction loan that is insured by the FHA (Federal Housing Administration) and covers the cost of the land purchase, building materials, contractors and other labor costs and permits.

Requirements

  • 640 or higher (as of 12/17/2023)
    • Typically, you only need a 580 FICO score to qualify with FHA.  However, this varies depending on the Lender’s criteria.
    • The FHA construction loan is accommodating for borrowers with lower credit scores, accepting a minimum score of 500-579 with a 10% down payment and for scores of 580 or higher, the own payment requirement drops to 3.5%.

Debt-to-income ration (DTI) should be below 43%

Have not experienced bankruptcy in the last 2 years.

3.5% for FHA financing. However, this varies depending on the Lender’s criteria.

You will need to verify a minimum of 2 years’ employment/income history.

  • For W2 borrowers, that means the last 60 days of pay stub, the last most recent 2 years W2’s and your last two most recent annual Tax Returns.
  • Self-Employed borrowers will need to provide the last most recent 2 years of Full Personal and Business Tax Returns as well as all Tax Schedules involved. In addition to, evidence of business existence

 

  • Mortgage Insurance Premium, which protects the lender in case of foreclosure. Mandatory MIP: FHA MIP has an upfront cost equal to 1.75% of the loan amount (which can be rolled into the mortgage) as well as an annual charge typically equal to 0.85% of the loan amount paid monthly.
    • MIP is usually required for the life of the loan. However, homeowners can often refinance to cancel the MIP and lower their monthly payment once they have 22% home equity.
  • The Loan must meet FHA Loan Limits – Meaning your total loan amount can’t be higher than your County’s maximum loan limit.

  • FHA Mortgage Limits (hud.gov)

Main Disqualifying Factors

High Debt-to-Income Ratio

Poor Credit

Lack of funds to cover the required down payment, monthly mortgage payments, or closing costs.

Additional fha loan options projects

Contact your Loan Consultant for more information

  •  FHA Construction-to-permanent loan – is a hybrid that combines the elements of a short-term construction loan with a traditional FHA mortgage. This versatile loan can be used to acquire land, finance construction costs, and cover lender fees.
  • FHA 203(k) loan – is a loan tailored for the rehabilitation and renovation of existing homes. This loan type is especially beneficial for purchasing fixer-uppers or upgrading your current home. It allows borrowers to include the costs of minor repairs (a minimum of $5,000) or significant renovations in their total loan amount.
    • The 203(k) program is divided into two options:
      • Limited 203(k) for projects und $35,000
      • Standard 203(k) for larger-scale renovations.
        The standard 203(k) loan requires a HUD-approved consultant to oversee the project, ensuring property execution and compliance with FHA Guidelines. This rehabilitation loan is a powerful tool for transforming an existing home into your dream space.