FHA New Construction Loan Requirements

There are two types of FHA construction loans: the construction-to-permanent loan and the FHA 203(k) loan. Construction-to-permanent loan: Typically called a construction-to-perm loan, this is an all-in-one FHA loan to build a house.

FHA loan rules in HUD 4000.1 define “new construction”. “New Construction refers to Proposed Construction, Properties Under Construction, and Properties Existing Less than One Year as defined below: Proposed Construction refers to a Property where no concrete or permanent material has been placed.

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Why do sellers avoid FHA loans? Both reasons have to do with the strict guidelines imposed because FHA loans are government-insured loans. For one, if the home is appraised for less than the agreed-upon price, the seller must reduce the selling price to match the appraised price, or the deal will fall through.

How strict is FHA inspection?

An FHA-approved appraiser ensures that the home meets the government's safety and livability standards. The rules aren't onerous, but are a bit more strict than those that apply to some other loan types. FHA appraisal requirements can seem a little intimidating since they're key to getting your FHA mortgage.

How long does it take for an FHA loan to close?

When you apply for this type of mortgage, the underwriter will make sure that your application meets both the lender's standards as well as the standards set forth by the FHA. FHA loans take an average of 55 days to close. For home purchases, the average is 54 days. For refinances, it's 59 days.

Does FHA have more than appraisal?

Any buyer who wants an FHA-backed loan has to use that appraisal amount during that time. This is bad news for the seller, as lenders aren't going to offer more than the appraised value. It's also bad news for the buyer if the seller refuses to go down on the price.

How often is FHA underwriting denied?

Underwriters deny loans about 9% of the time. The most common reason for denial is that the borrower has too much debt, but even an incomplete loan package can lead to denial.

How strict are FHA underwriters?

FHA loans can get rejected in the underwriting stage for various reasons. It might be that the borrower's credit score is too low, the debt-to-income ratio is too high, or the property fails to meet minimum requirements. Those are just a few of the reasons why an FHA loan might be rejected in the underwriting stage.

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