An FHA home builders loan is a loan for the purpose of constructing a home. If you plan to build a home, you may qualify for an FHA loan on the property. The Federal Housing Administration (FHA) is part of the U.S. Department of Housing and Urban Development (HUD). FHA offers low cost, easy financing requirements for first time homebuyers and others. The agency does not provide loans directly, but rather guarantees loans offered by traditional mortgage lenders.
An FHA home builders loan may be used for construction financing, modernization, extensive remodeling or expansions on a single or multifamily property. Those who would not qualify for a conventional loan through a traditional lender may obtain loans through the FHA for any of these needs.
To obtain any type of construction loan, individuals must meet specific qualifications. Individuals must demonstrate the ability to repay the loan by having steady employment and adequate income. The potential borrower must also meet credit rating qualifications. In addition, the lender must approve all plans for the property, including its estimated value. With construction loans, the process of funding over a period utilized. This means, the funds for the project receive release upon inspection at set periods throughout the building process.
Individuals who obtain FHA loans may be first time homebuyers. These loans are also beneficial to those who have less than perfect credit. Not everyone qualifies for FHA loans, but the requirements are often far less than those requirements conventional loans require.
Like all mortgages, FHA home builder loans charge interest to the borrower. This interest is paid directly to the lender holding the loan through monthly payments. In addition, closing costs are often in place. Closing costs on construction loans have payment at the time of the closing, which occurs after the construction phase of the process. In addition, most borrowers will pay mortgage insurance as part of their monthly payment to their lender. The borrower pays this fee to the FHA. Lenders only file a claim against the insurance if the borrower fails to make payment.
Obtaining the Loan
To obtain an FHA loan or home builders loan, individuals will need to locate an FHA approved lender. This can be done by utilizing the services offered at HUD.gov (see resources). Another option is to contact local or national mortgage lenders and inquire if they offer FHA loans for construction purposes. Once you find a lender, the application process is complete through that lender.