Getting an FHA construction loan can be a great way to build your dream home from the ground up With an FHA construction loan, you can finance the land purchase, construction costs, and permanent mortgage all in one loan. This saves you time and money compared to using separate construction and mortgage loans
However, not all lenders offer FHA construction loans So it’s important to find the right fha construction loan lender for your needs In this article, I’ll explain what an FHA construction loan is, key tips for choosing an FHA construction lender, and the top fha construction loan lenders to consider in 2023.
What is an FHA Construction Loan?
An FHA construction loan is a mortgage insured by the Federal Housing Administration that lets you finance building a new home or renovating an existing home. There are two main types:
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FHA Construction-to-Permanent Loan: This lets you buy land, pay for construction costs, and convert the loan to a permanent mortgage all in one loan. There’s only one closing.
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FHA 203(k) Loan: This allows you to buy and renovate a home by rolling renovation costs into the mortgage. There are options for minor renovations ($5,000+) or major renovations.
The benefits of an FHA construction loan include low down payments (as low as 3.5%), flexible credit requirements, and the ability to wrap everything into one loan. The downsides are you must pay mortgage insurance and meet stricter requirements.
6 Tips for Finding the Best FHA Construction Lender
Here are six key factors to consider when looking for the right FHA construction loan lender:
1. Experience with FHA Construction Loans
Look for lenders with extensive expertise doing FHA construction loans They will understand the process and requirements better Ask about the number of FHA construction loans they do per year,
2. Strong Customer Service
The loan process has many steps and will take several months. Good communication from your loan officer is essential. Seek lenders who emphasize responsive customer service.
3. Competitive Interest Rates
Compare interest rates across multiple lender quotes. Even a small rate difference can impact your monthly payment. Ask if they offer rate locks during construction.
4. Low Fees
FHA construction loans have unavoidable fees like the upfront mortgage insurance premium. But look for lenders that don’t pad on excessive lender fees. Ask for a detailed fee breakdown.
5. Positive Reputation
Check online reviews and testimonials for each lender. You want to work with a lender that has satisfied past customers and few complaints.
6. Offer Both FHA Construction Loan Types
Look for a lender that offers both the FHA construction-to-permanent loan and the FHA 203(k) renovation loan. This provides you more flexibility.
Top 10 fha construction loan lenders for 2023
Based on the above criteria, here are my top recommended FHA construction loan lenders to consider:
1. Veterans United
Veterans United is one of the largest VA lenders in America. But they also have extensive experience with FHA construction lending, doing over 1,800 FHA construction loans per year. Their loan officers are very responsive. They offer both construction-to-permanent and 203(k) loans.
2. Guild Mortgage
Guild Mortgage is a large national lender that offers a full range of home loans and has specialized experience with FHA construction lending. They have over 50 years of experience in the mortgage industry. Guild focuses on providing excellent customer service.
3. NBKC Bank
NBKC offers competitive interest rates and a streamlined application process. They are a smaller lender that provides a more personalized touch. NBKC has been recognized for their great customer service and efficient loan processing. They do both FHA construction loan types.
4. Trident Mortgage Company
Trident Mortgage is a well-established lender with decades of construction lending experience. They have a reputation for outstanding customer service and are frequently recommended by builders. Trident offers construction-to-permanent and renovation programs.
5. Caliber Home Loans
Caliber Home Loans is a large full-service lender that handles over $20 billion in loans per year. Their construction loan specialists have extensive FHA construction lending experience. Caliber has won awards for their customer service.
6. Supreme Lending
Supreme Lending is a growing national lender that specializes in FHA, USDA, and VA loans. They are experienced with both types of FHA construction loans. Customers praise their responsive loan officers and efficient underwriting.
7. Amerifirst Financial
Amerifirst Financial focuses on FHA loans, including construction-to-permanent programs and 203(k) renovation loans. They have over 25 years of experience as an FHA lender. Amerifirst has great online reviews and provides a smooth loan process.
8. Allen Tate Mortgage
Allen Tate is a regional mortgage lender in the southeast U.S. While smaller than national lenders, they have strong local expertise doing FHA construction loans. They emphasize good communication and keeping clients informed each step.
9. CrossCountry Mortgage
CrossCountry Mortgage is a large national lender that handles over $25 billion in annual home loans. They have extensive renovation and new construction lending experience. CrossCountry has won many awards for customer satisfaction.
10. Prospect Mortgage
Prospect Mortgage is one of the nation’s largest independent mortgage lenders, licensed in all 50 states. They have specialized FHA construction loan officers with deep knowledge of these programs. Prospect earns high marks for customer service.
How to Apply for an FHA Construction Loan
Once you’ve compared multiple lenders and selected one, the general process to get an FHA construction loan is:
- Get pre-approved – Confirm you meet credit, income, and down payment requirements
- Choose land and builders – Land and builders must meet FHA eligibility standards
- Get home plans appraisal – FHA reviews plans meet requirements
- Close on the construction loan – Loan disburses in draws as building progresses
- Convert to permanent loan – Within 60 days of completing construction
Be sure to ask your lender to explain the specific requirements, downsides, and steps involved with an FHA construction loan. While these loans provide a convenient financing option for building a home, they have stricter guidelines than conventional loans. Doing your research to find the right lender for your needs is key to having a smooth process.
Frequently Asked Questions
What credit score is needed for an FHA construction loan?
The minimum credit score is 500, but you must make a 10% down payment with a 500-579 score. With a 580+ score, you can qualify with just 3.5% down.
How much are the mortgage insurance premiums on FHA construction loans?
You’ll pay an upfront mortgage insurance premium of 1.75% of the loan amount, plus an annual premium between 0.45% – 0.85% of the loan amount.
Do FHA construction loans have prepayment penalties?
No, FHA construction loans do not have prepayment penalties. You can pay off the balance early without penalty.
Can I get an FHA construction loan for a manufactured or modular home?
Yes, FHA construction loans can be used to build a manufactured or modular home, as long as the home and land meet FHA requirements.
How long does the FHA construction loan process take?
The entire process usually takes 4-9 months from start to completion. Much depends on the builder’s timeline and whether any delays occur during construction.
The Bottom Line
An FHA construction loan lets you conveniently finance building or renovating your dream home all in one loan. But finding the right lender for your needs is essential. Look for an experienced lender that offers low rates, reasonable fees, strong service, and financing options for both new construction and renovations.
Veterans United, Guild Mortgage, NBKC Bank, and Trident Mortgage are some of the top fha construction loan lenders based on these criteria. Be sure to get multiple quotes and consult with each lender to fully understand the construction loan process and your options. With the right lender partnership, an FHA construction loan can make building your custom home smooth, simple and affordable.
Low Down Payment Construction Loans
Hurst Lending is pleased to offer FHA construction loans with a one-time close. You can get a construction loan with just a 3.5% down payment through this program. Home buyers can now build their dream home without fear of not qualifying for financing due to a lack of a down payment or a poor credit history.
Down payment of 3.5% instead of up to 30%.
A single loan for land, construction, and mortgage.
There is no danger of becoming unqualified during construction.
There will be no payments due while the building is being constructed.
FHA Loans for First-Time Homebuyers: Pros and ConsFHA construction loans, much like traditional FHA home loans, are designed to be accessible and affordable for all borrowers. They offer low down payments, as well as flexible credit standards, making it easier for you to qualify for the financing you need to build your new home. With FHA construction loans, you can wrap all building costs into a single mortgage loan, with the added convenience of a one-time close.
As an experienced FHA Construction Lender, we understand the unique challenges and needs of homebuyers who want to build a home with a FHA construction loan. We can provide you with the information and guidance you need to determine if a FHA Construction loan is the right choice for you. In addition to FHA construction loans, we also offer VA construction loans, which are specifically designed for military veterans. These loans offer the added benefit of zero down payment, allowing veterans to build their dream home with no money down.
We are committed to providing you with the best possible financing options to meet your specific needs and help you achieve your dream of building our dream home with a low down-payment. Contact us today to learn more about how we can help you secure FHA financing you need for your new home construction project.