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  • Writer's picturePreston Morris

How to Get an FHA Construction Loan

Updated: Aug 4, 2022

An FHA construction loan is a mortgage that allows you to roll in the costs of building a home from the ground up. There are two types of FHA construction loans: the construction-to-permanent loan and the FHA 203(k) loan.

Is a construction loan harder to get than a mortgage?

It's harder to get approved for a construction loan than for a typical purchase mortgage. That's because the bank is taking extra risk during the building phase, since there isn't an asset to secure the mortgage. Typical down payments are around 20%.

Looking For a FHA Construction Loan?

CLICK Here For Instant FHA Construction Loan Application!

Can I get a loan to build my own house?

Key Takeaways. Many people chose to build their own dream home rather than purchase an existing property—but a traditional mortgage won't help you with that dream. A construction loan can be used to finance the construction of a home, and typically only interest is paid during the construction period.

What happens when you go over budget on construction loan?

If your project goes over budget, you'll need to come up with the difference out of pocket or take out a second loan to cover the overages. For that reason, unless you have a solid grasp of the costs and schedule for the project, a one-time construction loan may not be right for your project.

FHA construction loan requirements

Borrower eligibility:

  • Down payment of at least 3.5%. This is the minimum for FHA financing

  • Credit score of 670 or higher. Technically, you only need a 580 FICO score to qualify with FHA. However, a higher credit score of at least 670 is usually needed for the FHA construction program

  • Clean credit history. You must not have experienced bankruptcy in the last two years

  • Debt-to-income ratio (DTI) below 43%. That means your monthly debts — including future mortgage payments — don’t take up more than 43% of your monthly pre-tax income

  • You will need to verify two years of employment and income. For W-2 borrowers, that means the last 60 days of pay stubs, the last two years of W-2s, and your last two annual tax returns. Self-employed borrowers will need to provide the last two years of full personal and business tax returns as well as all tax schedules involved.

FHA Construction Loans: The Bottom Line

FHA loans aren't just for purchasing a pristine and perfect property. You can also use them toward building your dream house or for rehabilitating a fixer-upper.

Regardless of your goals, it's important to find a lender, builder, and contractor who are experienced in these unique types of FHA loans, as they require additional paperwork and documentation before approval.

Looking For a FHA Construction Loan?

CLICK Here For Instant FHA Construction Loan Application!

What Are the Benefits of an FHA One-Time Close Loan?

There are several benefits that everyone should note of an FHA OTC Loan. Some of the most important benefits include:

  • There is only one closing process which saves both time and money, as people only have to pay closing costs once

  • Anyone who is looking to borrow money to cover the cost of building a new house can do so with as little as 3.5 percent down

  • Because the loan is insured by the FHA, the interest rates are kept low

  • No payments are made during the construction process

  • There is no re-qualifying process after the construction phase is completed, which saves even more time and money

  • The interest rate on the FHA OTC Loan cannot change during the construction process because it is fixed

  • A reliable team of professionals will handle the transaction from start to finish, acting as the contact point for the borrower when it comes to builder approval, cost calculations, project review, and more

These are only a few of the many benefits that are going to accompany an FHA OTC Loan. It is easy to see why this loan has become so popular among individuals and families building their own homes!

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