Are you aware of the FHA construction loan? You may have heard of FHA loans, but what about their construction loan benefit? FHA mortgage loans are not only about helping Americans who are having a hard time qualifying for conventional loan mortgages but also about building your new home. These loans can also help you with renovations.
Construction loan by the FHA – what is it?
Construction mortgage by the FHA combines the traditional FHA mortgage and the advantage of a short-term construction loan. As it is an FHA loan, this benefits borrowers with a poor to fair credit score rating and those with a lower debt-to-income ratio. Under normal circumstances, borrowers with lower credit scores cannot avail of these benefits. As the Federal Housing Administration backs this construction loan, you can start building your dream home even if your credit score is in the 500 range.
What are the types of FHA construction loans?
Constructions loans offered by the FHA can cover the costs of purchasing the land, construction, and permit fees. With this kind of loan, you can include everything from building or renovating your chosen home in your FHA mortgage application.
There are two types of construction loans offered by the FHA:
- FHA construction-to-permanent loan – this kind of loan is ideal for construction projects. It combines short-term construction loans and the more common FHA loan. This is the option to take if you need to have available cash to buy the land and build the home. Once this is done, it will be part of your permanent mortgage after construction completion.
- FHA 203 (k) loan. – if the house you want to purchase needs renovation or even the home you own needs renovated, then an FHA 203(k) loan is an option. Anything that has something to do with renovating, remodeling, or fixing a home you want to buy or your existing one can fall under this category.
There are pros and cons to FHA construction loans, so drop us a line to explore the possible options you can make.