When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. To minimize the risk to the mortgage lender, the mortgage loan (the maximum allowable amount) is eligible for endorsement by HUD as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established. At this point the lender has a fully-insured mortgage loan.
To be eligible, the property must be a one- to four-family dwelling that has been completed for at least one year. The number of units on the site must be acceptable according to the provisions of local zoning requirements. All newly constructed units must be attached to the existing dwelling. Cooperative units are not eligible.
Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place.
In addition to typical home rehabilitation projects, this program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling. An existing multi-unit dwelling could be decreased to a one- to four-family unit.
....used for Rehabilitation work on a home....not constructing a new one.
I haven't heard of FHA doing a construction loan, rather a 203K which is a Rehab loan. You should search different lenders websites for rates on construction loans.....Construction loans usually have time limits on them and they are normally interest only during the construction of the home and upon completion a construction loan is modified where you will then have "principal and interest" payments during the term of the loan, ie 30 years. That type of loan is considered a 1 close loan and then there are different programs in which you would need 2 closings.
You can buy a lot first and then choose a builder or there are some builders that already have lots and are willing to customize a home for their buyers.
When obtaining a loan, your loan officer should be able to tell you if you need to sell your home 1st before getting another loan for a new home.
I have worked with/marketed new subdivisions for many builders in the Chicago area as I specialize in new construction.
I work in the Western suburbs and if you need assistance please don't hesitate to contact me.
I hope this helps and good luck!
To get an idea of how the overall process of having a home built works and determining when to hire an architect or not, I'd suggest taking a look at "How to work with an architect" by Gerald Morosco, AIA. This book should be able to give you a pretty good overview of the new construction building process.
Below is a link to hiring a home builder as well:
Generally speaking banks do not like to lend money on the purchase of vacant land. Vacant land must often be purchased using cash.
Your question about whether or not you'd have to sell your current home before pursuing have a home built for you is really a question about your financial wherewithal- and one that I'd speak with a financial specialist (including mortgage lenders) about before making any decisions.
Broker Associate, Sudler Sotheby's International Realty
You would probably try and get a FHA Construction loan. I would try and find a builder first and then start looking for lots. This way you can discuss plans on what type of house you want to build, which will lead to the size of lot you will need to find. You start making payments once the construction is complete.
Regardging do you have to sell before you start this building process, that is something only you can answer. It depends on how well off you are. If you can afford to build it and be able to own your current house then its up to you if you want to pull the trigger or not. Although, in this housing market, and in this economy, I would advise against it. Who knows what the future will hold with your finacing and why chance going down a dangerous road. I would put your main efforts into selling, and once that is done, focus on the buying aspect. I hope this helps a little!
Americorp Real Estate
Brokers Associate, e-PRO