How to Get FHA Construction Loans
Federal Housing Association (FHA) construction loans are something to consider if you have construction or remodeling in mind. Most first time buyers often go with FHA construction loans that can be used for construction financing, refinancing, modernization, remodeling, equipment, and expansion. FHA loans are a little more expensive compared to other construction loans due to the upfront mortgage insurance premium, but in the right scenario it can be a cheaper alternative overall. Additionally, FHA lending guidelines are not as strict as the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).
Things Needed for FHA Construction Loans
- Personal financial information - This is information about your present financial situations, any existing loans you have at that time, as well as your income.
- Credit rating - When it comes to your credit rating, guidelines for FHA loan approval are more lenient. A few past problems aren't enough to spoil your chances to get an FHA home mortgage; however, FHA guidelines are stricter when it comes to missing payments on previous home loans, bankruptcy and related issues.
- Property Information - This includes a description of the type of property, the estimated value of the property and the address.
Once documents are created and/or collected on your loan application, there are a number of steps that go into obtaining FHA loan.
Step 1 - Calculating Your FHA Construction Loan Amount and Selecting a Lender
Calculating the actual loan amount for an FHA construction loan may be a bit complex, but suffice it to say that the program can be used for both purchase and rehab of an existing property or refinancing and rehabbing an existing home. In either case the owner's equity (or the down payment, if purchase) can be as little as 3%. The FHA considers your loan affordable if the house payments do not exceed 29% of your gross monthly income. After you decide on the loan amount, you need to select a lender.
Step 2 - Filling Out Your FHA Construction Loan Application
One a lender or lenders are selected, the next step in the process will involve filling out all the paperwork to obtain FHA construction loans. The actual amount of paperwork and the documentation required will vary depending on lender. It is at this point that personal financial information, credit ratings and property information are required.
It is crucial to that you are filling out the FHA construction loan application thoroughly and accurately. Any deviation from the truth will hurt you legally down the road and negatively impact the success of your construction loan application.
Step 3 - Closing on FHA Construction Loans
Once applications for FHA construction loans are completed and filed, it is not uncommon for lenders to request additional information. More specific financial documentation may be requested to finalize the FHA Construction loans. It is also not out of the question that lenders would want more information about the proposed plans for the property.
FHA loan applications can be more forgiving of past credit mistakes and you'll pay less out of pocket for down payments than with conventional loans. The construction project or home of your dreams can be a reality with FHA construction loans. As long as you prepare beforehand by gathering information and address paperwork and lenders with thorough and accurate information, you'll be on your way to construction in no time.