When building a new home instead of buying an older house, you may assume that a conventional program is the only option. The good news is, FHA has a solution for construction! There are several key differences between conventional and FHA construction mortgages, which are listed below.
Loan limits differ for every kind of loan. For FHA, it is based on the state and county. It is important to understand the figures that apply to your area beforehand. Check with a lender for updated information as the amounts will change annually.
Application and Appraisal Charges
Appraisals for FHA FHAs are typically more expensive than for other types of loans. This is because the appraiser needs to be FHA certified and the report is more involved. With new homes, appraisers must review details on the features and other building details to calculate a value. An inspection before closing is also common in order to confirm that the house constructed is consistent with the specifications.
Some lenders waive application fees. However, an application fee is necessary for an FHA construction mortgage. The specific amount may differ based on the type of home you are planning to build.
Down Payment Requirements
The minimum down payment permitted for FHA mortgages is 3.5%, compared to 5% or 10% for other mortgages. Also, down payment and closing costs may be gifted from a family member. Verification of where the funds came from may be requested.
More paperwork is usually requested with an FHA construction mortgage. FHA processors need to be sure that the mortgage amount is appropriate. As with any mortgage, mortgage companies will also look through your financials and credit worthiness as well.
More On FHA Mortgage
FHA Mortgages were established to make buying houses more appealing. They have become a great program for a majority of first time home buyers. FHA construction mortgages require a few extra steps than typical conventional mortgages but is a great alternative when building a new home. Speak with your mortgage professional for more in-depth information on this program and to find out whether it will work for you.