Know This Before You Build or Remodel a Home
June 21, 2022
FHA loans aren’t just for existing construction houses. There are also low down payment FHA loans that can help you build or renovate a home. Do you want an FHA mortgage to build a home from the ground up? An FHA One-Time Close mortgage is an option to consider, with its low 3.5% down payment requirement.
There are also FHA loans that can help you buy and renovate a home, called FHA 203(k) Rehabilitation Loans and they are also available as an FHA refinance.
These loans require you to use escrow, hire contractors to do the work, and you’ll have to have the work inspected after it is done. It may sound complicated, but if you want to build instead of buy you can learn a few things ahead of time that may help you manage the process.
For example, did you know you don’t have to own land to be approved for the loan? You can purchase land as part of the mortgage but you cannot use an FHA loan to buy undeveloped land you don’t have a plan to build upon.
And when it comes to selecting a contractor, not all builders are suitable for construction loans. Why? Not every licensed contractor has experience with such large projects. You will want to select an experienced builder who has worked on your type of project.
If it sounds like research is an important part of your planning when building or renovating a home, you’re right.
You’ll need to look at the reputation of the builders you are hiring, their level of experience as mentioned above, and whether or not the contractors are current on permits and insurance. You should also research the area you want to build in to make sure the type of property you want is suitable.
All of the above is common sense when it comes to building a new home but why would you want to research the neighborhood if you are renovating with an FHA 203(k) Rehab Loan instead?
In cases where you are upgrading your home, it’s important to know you aren’t upgrading it too much.
If other houses in the area have budget features and you upgrade to upscale versions of those features such as granite countertops, better siding, smart home features, energy-efficient appliances, etc. you may actually improve your home so much that it is no longer comparable with similar properties in the market.
In the real estate industry, this is known as over-improvement and it can actually make a difference when it comes to loan approval to buy such a property. Remember, when the appraiser reviews your home before it goes up for sale, that process includes looking at your home side-by-side with others.
If your home improvements make your house more of an outlier in the market, it may be tougher to sell when the time is right. Catching up to the “standards” in a neighborhood is one thing, but exceeding what’s typical in the area could hurt your chances to sell later.
FHA, VA, and USDA: One-Time Close Loans
Want More Information About One-Time Close Loans?
We have done extensive research on the FHA (Federal Housing Administration), the VA (Department of Veterans Affairs) and the USDA (United States Department of Agriculture) One-Time Close Construction loan programs. We have spoken directly to licensed lenders that originate these residential loan types in most states and each company has supplied us the guidelines for their products. We can connect you with mortgage loan officers who work for lenders that know the product well and have consistently provided quality service. If you are interested in being contacted by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.
OneTimeClose.com provides information and connects consumers to qualified One-Time Close lenders in an effort to raise awareness about this loan product and to help consumers receive higher quality service. We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.
Please note that investor guidelines for the FHA, VA and USDA One-Time Close Construction Program only allows for single family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes). In addition, the following homes/building styles are not allowed under these programs: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.
Your email to [email protected] authorizes OneTimeClose.com to share your personal information with a mortgage lender licensed in your area to contact you.
1. Send your first and last name, e-mail address, and contact telephone number.
2. Tell us the city and state of the proposed property.
3. Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good - (640-679), Fair – (620-639) or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.
4. Are you or your spouse (Co-borrower) eligible veterans? If either of you are eligible veterans, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio per VA will allow – there are no maximum loan amounts as per VA guidelines. Most lenders will go up to $750,000 and review higher loan amounts on a case-by-case basis. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.
There are also FHA loans that can help you buy and renovate a home, called FHA 203(k) Rehabilitation Loans and they are also available as an FHA refinance.
These loans require you to use escrow, hire contractors to do the work, and you’ll have to have the work inspected after it is done. It may sound complicated, but if you want to build instead of buy you can learn a few things ahead of time that may help you manage the process.
For example, did you know you don’t have to own land to be approved for the loan? You can purchase land as part of the mortgage but you cannot use an FHA loan to buy undeveloped land you don’t have a plan to build upon.
And when it comes to selecting a contractor, not all builders are suitable for construction loans. Why? Not every licensed contractor has experience with such large projects. You will want to select an experienced builder who has worked on your type of project.
If it sounds like research is an important part of your planning when building or renovating a home, you’re right.
You’ll need to look at the reputation of the builders you are hiring, their level of experience as mentioned above, and whether or not the contractors are current on permits and insurance. You should also research the area you want to build in to make sure the type of property you want is suitable.
All of the above is common sense when it comes to building a new home but why would you want to research the neighborhood if you are renovating with an FHA 203(k) Rehab Loan instead?
In cases where you are upgrading your home, it’s important to know you aren’t upgrading it too much.
If other houses in the area have budget features and you upgrade to upscale versions of those features such as granite countertops, better siding, smart home features, energy-efficient appliances, etc. you may actually improve your home so much that it is no longer comparable with similar properties in the market.
In the real estate industry, this is known as over-improvement and it can actually make a difference when it comes to loan approval to buy such a property. Remember, when the appraiser reviews your home before it goes up for sale, that process includes looking at your home side-by-side with others.
If your home improvements make your house more of an outlier in the market, it may be tougher to sell when the time is right. Catching up to the “standards” in a neighborhood is one thing, but exceeding what’s typical in the area could hurt your chances to sell later.
FHA, VA, and USDA: One-Time Close LoansWant More Information About One-Time Close Loans?
We have done extensive research on the FHA (Federal Housing Administration), the VA (Department of Veterans Affairs) and the USDA (United States Department of Agriculture) One-Time Close Construction loan programs. We have spoken directly to licensed lenders that originate these residential loan types in most states and each company has supplied us the guidelines for their products. We can connect you with mortgage loan officers who work for lenders that know the product well and have consistently provided quality service. If you are interested in being contacted by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.
OneTimeClose.com provides information and connects consumers to qualified One-Time Close lenders in an effort to raise awareness about this loan product and to help consumers receive higher quality service. We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.
Please note that investor guidelines for the FHA, VA and USDA One-Time Close Construction Program only allows for single family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes). In addition, the following homes/building styles are not allowed under these programs: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.
Your email to [email protected] authorizes OneTimeClose.com to share your personal information with a mortgage lender licensed in your area to contact you.
1. Send your first and last name, e-mail address, and contact telephone number.
2. Tell us the city and state of the proposed property.
3. Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good - (640-679), Fair – (620-639) or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.
4. Are you or your spouse (Co-borrower) eligible veterans? If either of you are eligible veterans, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio per VA will allow – there are no maximum loan amounts as per VA guidelines. Most lenders will go up to $750,000 and review higher loan amounts on a case-by-case basis. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.
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