FAQ: How does the FHA Construction to Permanent Mortgage program work?
A construction-permanent mortgage combines the features of a construction loan, a short-term interim loan for financing the cost of construction, and the traditional long-term permanent residential mortgage. For mortgage insurance and LTV purposes, we consider it to be a purchase transaction. The mortgage lender makes the loan directly to an approved borrower/homebuyer. There is one closing that occurs prior to the start of construction. At closing, funds are disbursed to cover purchase of the land, with the balance of the mortgage proceeds placed in an escrow account to be disbursed as construction progresses. The loan is insured after construction is complete. Amortization must begin no later than the first of the month following 60 days from the date of either the final inspection or issuance of certificate of occupancy, whichever is later. For more information, see the referenced Handbook.
FHA and VA Construction Loans
The FHA and VA Construction/Perm programs provide for financing of new construction with a "One Time Close Loan and Modification". These loans will close as either FHA Fixed, FHA ARMs, or VA Fixed. Under both programs the builder will make interest only payments based on funds disbursed at an interest rate equal to the Prime Rate plus 1.500%. This combination is known as the Construction Interest Rate and is subject to change on a daily basis. This rate is used to calculate on a daily basis, interest which is paid monthly. When construction is complete, the loan will modify into the terms of the permanent mortgage.
You must lock your permanent interest rate after loan approval for at least 150 days. Under these programs the builder must pay the following:
All normal construction fees except origination and discount points.
Payments of construction interest accrued during construction.
All FHA and VA inspections, where applicable, as well as all normal draw inspection charges.
The primary advantage of these programs is that they require lower down payments and have more relaxed credit requirements than our conventional construction loans.
Yes you can do a construction home but it is very specific and very extensive process. Yes you can limit the down payment to 3.5% but that would be based on comparitive market rates and keeping the homes final LTV/Cost competitive and right now the market is down 25-45 % depending on location so this market may make it much more difficult.
We have over 250 lenders and can assist you with this process. Hopefully one of them can assist us in financing your dream home.
Hope this helps.
The way the question was worded was a little confusing. The initial question sounds like the author was asking if FHA will lend on a newly constructed home, which the answer is "Yes". There's several forms for the builder to complete proving the property is warranted and the builder has received the certificate of occupancy. A pest inspection is also required if the property is in a pest state.
The appraiser must complete a "compliance inspection" report to verify the house is in working order including utilities.
As for a true construction loan to build a home, the answer is unfortunately "no". The rehab loan is like a mini-construction loan in that the costs of the work are financed and escrowed for the contractors but is limited to rehab work, which does NOT include constructing or moving load-bearing walls. There's a large list of rehab work that can and cannot be done with a rehab loan. They're called FHA 203k loans.
From your comments, it does not appear that this is your situation so you may have to take on the process yourself. Do you have a good Realtor? They would be able to assist you in the process. It will take some time to accomplish so the sooner you begin the better! Hang in there!
Prosperity Mortgage and some other lenders were doing them. But since you own the lot, I do not know if it will work. I was under the impression this loan also paid for the lot. Might be able to still work it out though.
Im going to reach out and see if I have someone who can post here so you can talk to them.