You may have to check with several lenders before you find a willing FHA lender, but they are out there
If you are in the market to build a house, you have unique mortgage needs. Because no lender can provide you with an actual mortgage until there is a house to live in, you need temporary construction financing first to even build the online installment loans OH house.
This type of financing can be a bit more difficult to find because of the risk involved, but there is an FHA loan that you can use. It’s called the construction-permanent FHA loan.
What is a Construction-Permanent Loan?
A construction-permanent loan provides you with two types of loans all in one process. You only have to qualify for the loan once and attend one loan closing. The first part of the loan is the temporary or short-term loan. These funds cover the cost of constructing the home including the labor and supplies.
The second part of the loan is the permanent financing, which is your standard mortgage. This is the financing you are likely used to as you can secure 30-year financing for the cost of the home. However, when you build your own home, you need the funds to help pay for the land, supplies, and the contractors to build the home. You can use the construction portion of the loan to purchase the site as well, if you have not already bought it with other funds.
How the Construction Loan Works
The first part of the loan is the most confusing. You will apply for the funds necessary to build the home. The builder will provide you with a contract, which the FHA lender must approve. The FHA lender will then approve you for a loan for that amount, if you qualify.
You attend a closing before any construction activity starts on your home. Rather than the funds getting disbursed right away to the builder, as would happen in a standard developer purchase, the lender puts the funds in an escrow account. Prior to the closing, the lender would have created a disbursement schedule in conjunction with the builder. Read more