FHA new construction is a great program for borrowers who want to build their own home and do not have a large down payment. The FHA new construction program allows for a down payment as little as 3.5% of the lesser of the construction cost or appraisal value.
The buyer can use their own land equity, or they can purchase the land with the construction loan. This program is one time close, permanent financing. The permanent interest rate is locked prior to closing.
These two features, locked permanent interest rate and low down payment, make the FHA new construction program very attractive for many families who want to build their new home.
The processing involves three tracts:
- Normal FHA loan approval
- Contractor approval
- Construction approval
As with all construction permanent loans, an attraction for the contractor is that they will not need to use their own credit lines for the construction. The draw schedule is percentage completion.
For the new home owner, the locked permanent rate means no permanent loan surprises when the new home is finished.