By Shauna Zamarripa
FHA loans provide a wide selection of mortgage financing. Among these varieties is FHA loan approvals for new construction loans. While the process of construction loans does differ from a normal FHA loan, many of the same underwriting guidelines remain the same. The requirements for FHA new construction loans are extremely important to know prior to undertaking a new home building project.
FHA construction loans require that a borrower obtain a mortgage commitment letter from a lender. This letter states that the lender will provide a loan for the property once complete, providing that the applicant's employment, income or debt does not substantially change.
The amount used to determine the financing total for a mortgage commitment letter is based on FHA loan limits and the borrower's income. This will be verified at least three times during the construction process to ensure that the borrower can take on the loan obligation when the home is complete.
FHA construction loans require documented proof of income, revolving debt and credit histories for all applicants. However, borrowers who might need time to work on credit scores or paying down some credit lines have this flexibility to do so while their property is under construction. Whereas a normal FHA loan would be a denial until those factors are resolved.
With new construction, it is best with an FHA loan to select a tract home builder, as opposed to a custom builder. Larger, national builders have their own credit trade lines to advance funds for construction costs and workmanship, meaning that your home will not come in over budget. Custom builders have multiple fluctuating costs, and the price of the new construction can change throughout the process.
FHA construction loans are highly beneficial for applicants wanting to purchase a new home. Some fees are even waived or credited when building an energy-efficient home that might not otherwise be available for a resale purchase.
When applying for an FHA new construction loan, it is important that from the commencement of construction through the completion of the home that no large purchases or transactions are done by the borrower. This could lead to loss of the home due to a loan denial. Keep all financial aspects of your life status quo until the new home is complete and can be closed on first.