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There are five things to know about FHA home loans that can help you make more informed decisions while you are still planning. You will want every advantage possible in preparing for the transaction. Here are five things to remember about construction loans.

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FHA.com is a privately owned website, is not a government agency, and does not make loans.

Five Tips About New FHA Home Loans

January 12, 2023

Five Tips About New FHA Home Loans
There are five things to know about FHA home loans that can help you make more informed decisions while you are still planning.

The planning phase is extremely important and you will want every advantage possible in preparing for the transaction. Here are five things to remember about construction loans.

Expect Scrutiny From the Lender

FHA loans have more forgiving credit guidelines than some conventional mortgages but don’t expect to fly through the application process without working on your credit. Make sure your credit is well prepared (on time payments, reduced debt ratios, lowered credit card balances) going into the application process.

Don’t start a home loan application if you don’t know your credit scores and the contents of your credit report--you aren’t ready yet.

Some FHA Loans May Require Permits

Buying an existing home won’t require a building permit. Unless, of course, you purchase a fixer upper or have required corrections to make as a condition of loan approval. But an FHA 203(k) Rehab Loan would, and so would an FHA One-Time Close Construction Loan.
 
Be mindful of the permit processing times in your housing market. If you don’t know how long it takes to have permits approved in your area, find out. The wait may be longer than you expect, depending on the market.

Do Some Research on the Local Area

Basic research should include whether your new home might be in a flood or forest fire zone. Do you know what you might be getting into if you buy property in an area known for its climate issues?

Don’t Neglect the Down Payment

FHA loans usually require a down payment but you may be able to get assistance from a state or local agency offering down payment assistance and closing cost assistance.

Not all home loans have the option of this type of help; participating lenders may not approve an FHA One-Time Close mortgage, for example, if you rely on a down payment assistance program. But lenders offering FHA purchase loans (including condo loans and manufactured home loans) do permit this type of assistance in typical cases.

Research Your Costs

Find out how much your home loan will cost you over time, assuming you stay in the home 5 years, 10 years, or the full duration of the mortgage. Does purchasing discount points for a lower mortgage rate make sense? Should you make a larger down payment so you can cancel FHA mortgage insurance in 11 years? These are important questions to ask if you are interested in saving money over the duration of the mortgage.

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