FHA Loan for new construction?

[nightworm14]

Can we get an FHA loan for a new construction single family home? If so, what are the requiremetns...how does it work?

[mom22sonz]

Yes. I am looking to do the same. I am sure one of the pros will jump in and give you the rest of the information. Best Wishes. 

[songsofexperience]

Yes, you can. It's usually better to buy a tract home than custom, but otherwise is basically the same. A quick google will pull up more info. I believe it's a one-time close, which is good. Builder has to meet certain requirements etc. Borrower requirements are same as those for existing home FHA mortgages (credit, down payment etc). Others can probably tell you more.

[ShanetheMortgageMan]

It's pretty similar to a regular FHA loan except for the builder, plans, and other information pertaining to the building process is reviewed & approved by the lender.

The down payment is calculated on the cost of the land + construction cost (together it's called the "project cost").  So if the land cost $50k and the construction cost is $150k, then the total is $200k and the 3.5% down is calculated on that figure (as long as the appraised value comes in at that figure).  The appraisal is done as if the home is already completed, and needs to come in at or above the project cost figure, otherwise the down payment is calculated on the lower of the two.  Since you should be getting a better deal than if you purchased a home after it's already been completed, then I've found the appraised value is rarely an issue.

After the loan has been through final approval and you have closed, the funds are disbursed in "draws" that pay out the homebuilder after each stage of homebuilding has been completed (the exact milestones for each stage will be discussed between the lender & builder).  The first draw (which is when the loan closes) will pay for the land + any soft costs such as permits, architecture plans, engineering plans, etc.  Usually the next draw pays for the foundation, then the next is for framing, HVAC, plumbing, and electrical, and goes on from there.  Before each draw is made, the lender has an inspector go out to the home which insures that the builder is running on schedule and is staying within the planned budget.

The payments during the course of construction are interest only, and are either paid by you as the loan progresses or there is an "interest reserve" build in to the closing costs which will be used to make those payments.  Some lenders give you options and some lenders may just have it set up one way or the other.