If you have chosen to construct a new home over purchasing a resale, you may mistakenly think that a conventional mortgage is your only option. You should know that FHA has a loan for construction! There are several notable differences between conventional and FHA construction loans. Below is an overview.
An appraisal for an FHA loan is often more costly than for other loan programs. The reason is that they must be FHA approved and the report is more complicated. With a property not yet built, appraisers must analyze specifications to calculate a price. A final inspection is also common to check that the finished house matches the specifications.
Some mortgage companies waive application fees. However, an application fee is always charged for an FHA construction loan. The fee may differ depending on the type of property you are building.
Funds Needed for Down Payment
The lowest you can put down for FHA loans is 3.5%, compared to 5%-10% for other loans. Furthermore, some of the money required may be gifted from a member of the family. Documentation in the form of a gift letter might be requested.
More paperwork is normally required with an FHA construction loan. There is more risk with new homes. As with any loan, mortgage companies will carefully review your finances and credit profile too.
FHA Loan Limits
Loan limits for FHA loans vary from other loans. For FHA, it depends on the county in which the home is located. It is useful to understand the figures that apply to your area ahead of time. The figures can change every year, so be sure to check with a mortgage officer for current amounts.
Additional Information on FHA Loan
FHA Loans were created to make buying homes more appealing. They are often a preferred option for all first time buyers. FHA construction loans have more work than other loans but is a great alternative when constructing a new house. Contact a mortgage officer for more detailed information on this program and to learn whether it will work for you.