FHA New Construction Loan Requirements | Guidelines & Property Types
Looking for FHA new construction loan requirements? A lot of lenders require a bridge loan for new construction, which calls for re-qualification and a second appraisal after the construction is complete. This FHA new construction loan is for financing the construction, lot, and permanent mortgage with one single loan.
Advantages of the FHA New Construction Loan
When it comes to most types of new construction financing with lenders, they require a bridge loan that incurs additional cost. Since most new construction loans are short term, borrowers incur additional closing costs and have to re-qualify for the permanent loan.
The FHA new construction loan does not require re-qualification or a second appraisal due to the nature of the construction, lot purchase, and permanent mortgage being all one loan.
For the FHA new construction loan, the construction, lot purchase, and permanent financing are funded with one closing. You will work with a team that is knowledgeable and comfortable with the process, which allows for a streamline process.
Key Factors
- You do not have to make payment during the construction.
- No re-qualification is required after the construction is complete.
- Loan closes prior to construction.
- Just one single closing reduces costs.
- Streamline process.
- Rate is locked prior to closing.
FHA New Construction Guidelines
- The minimum down payment is 3.5% for the FHA new construction loan.
- The maximum loan amount goes up to FHA county mortgage limits.
- Have to occupy the property as your primary residence – owner-occupied only.
- Borrowers must go through the pre-approval process and a Loan Originator must get an Automated Underwriting System (AUS) approval.
- You may be eligible for regular FHA financing with a manual underwrite.
- This FHA program requires a minimum credit score of 620.
- FHA financing is available for borrowers under 620 credit score.
Eligible and Ineligible New Construction FHA Loan Types
Eligible construction types: new site/stick built, new manufactured construction, and new modular construction.
Ineligible construction types: multi-units, single-wide manufactured homes, condominiums, attached housing or semi-attached, and unique construction types.
Unique types include: log homes, kit homes, metal homes, bamboo homes, storage container homes, tiny homes, and other types of non-traditional construction types.
The land can be purchased, gifted (FHA gift guidelines apply), owned, or land equity can be used for the down payment.
Other Types of New Construction Loans
- VA new construction program.
- USDA new construction program.
- Investment new construction program.
Advantages for Builders and Retailers
The FHA new construction loan allows builders and retailers to not have to worry about borrowers requiring a significant down payment or unfavorable variable rate construction loans. Since the loan closes all at once, a borrower does not have to re-qualify, which eliminates the chances of a credit situation changing.
