Construction loan via FHA?

[JMMD]

How hard is it to obtain a construction loan via FHA?

[ShanetheMortgageMan]

If you qualify for a normal FHA loan, then it's not any more difficult.  We started offering them months ago and the qualifying credit, income & reserve guidelines are the same.  Only difference is that instead of a sales price, there is the project cost (cost of the lot + cost of construction).  Just like a normal FHA purchase, the home must also appraise for the project cost, as the 3.5% down payment is calculated on the lower of the two.

[JMMD]

Thanks, Shane. We would like to build it ourselves( no general contractor) but with a "site manager" I hope by having a site manager listed on the paper work that things would go smoothly. Have you ever dealt with something simlar?

[ShanetheMortgageMan]

Not aware of any lenders offering "owner builder" (that is what it is referred to as) construction loans these days.  Even at the height of their popularity (06-07) owner builder was tough to find and qualify for, as there is a potential conflict of interest when one is both the contractor & borrower.  From what I saw, quite a few owner builders were paying themselves income (via labor costs) through the loan, and construction loans aren't supposed to be a source of income for the borrower.  With a separate GC you can still play a part in picking the subs, it's just that everything has to be administered by & through the GC.  The GC will need to be thoroughly vetted by the lender too, a GC who isn't doing this as their full time profession usually fails the vetting process.

Documents the GC/builder normally needs to provide are:

1. Copy of Builder's/Retailer's License(s)
2. Certificate of Insurance for General Liability
3. Certificate of Insurance for Worker's Compensation
4. Builder's Risk Insurance
5. Most Recent Two Years of Tax Returns
6. Year-to-Date Profit & Loss Statement and current Balance Sheet
7. Executive Summary providing an overview of experience

[JMMD]

Thanks again for the reply. I appreciate the information. Sounds like it makes more sense to just buy a home at this point unless we can afford a GC. There is a nice market here to choose from so we shall see when the time comes.

[Anonymous]

We offer the program as well. I wonldn't go as far to say that if you qualify for an FHA purchase loan you will qualify for an FHA construction loan. I have access to FHA purchase programs with credit scores as low as 550. The construction loan program requires a 620 score.