FHA Home Construction Loan Qualifications

Financing you homes construction

Getting a construction to permanent loan is an excellent opportunity to build the home of your dreams. It also ensures you make a low down payment compared to what most lending institutions require on such loans. The article offers FHA construction loan guidelines, allowing borrowers to understand the significant points and features of an FHA construction to permanent home loan.

How to get an FHA construction to permanent loan

It is usually an attractive idea to build your home when the existing home inventory is low. This is so as you get to choose the builder, the location, the paint colors, the floor plan, and practically everything about the home. However, the major problem with a construction loan is that most lending institutions tend to require 10 to 25 percent down payment. This is where construction loans by FHA are different and helpful, with down payment as low as 3.5 percent. This low down payment is an exciting feature of the FHA construction loan.

Below are some points to understand as you consider taking up an FHA Construction to Permanent Loan


The first part of the process is to ensure that you are eligible for an FHA-backed loan. Check out the income, asset, and credit guidelines to be sure you meet all of them. It is worth noting that there will be no need to seek an FHA construction loan if you fail to meet the general FHA guidelines.

The good news, however, is that the guidelines set by the FHA are less strict compared to other traditional mortgages.

Selecting a Builder

Once you confirm your eligibility for FHA financing, you will be required to find the right builder or contractor as the case may be. It is essential to carefully review the competencies of the contractors, looking at their past jobs and their experience in the sector. You will also check out the types of projects they are willing to handle and the duration of building a house with similar features to what you seek.

Approval of Builder

After the selection of a builder that meets your needs, the next step will be to get your lender’s approval of the builder. With an FHA construction to permanent loan, the process might seem a bit more complicated. This is so as you have to be approved as a borrower, as well as your builder going through a detailed approval process. References, a year to date profit and loss statement, two year’s tax returns, and applicable licenses amongst others are some of the things to be provided by the builder.

The process of approving the builder takes between 2 and 12 weeks depending on the builder’s ability to provide the needed documents.

Selection of Site

Once you get pre-approval and your builder gets approved, you are getting closer to the Promised Land.

The next step will be to select the most suitable site for your new home. An FHA construction to permanent loan allows you to finance the purchase of land and development of the house in one mortgage loan. It gets even better for persons that already own an area as they can use the equity that they have towards down payment.

Project Approval

After selecting the site, the next step will be to get the figures from the builder as regards the cost of the project. Once you conclude with the builder on the figures, the lending institution reviews the construction agreement, subsequently structuring the loan accordingly. The Federal Housing Administration is entirely against the involvement of the borrower in the construction process in any way.

The builder is charged with the responsibility for all improvements and constructions in the construction agreement.

Structure of the Loan

FHA loans have upper limits for the loan amount depending on the county in each state. FHA construction to permanent loans is no exception to the rule regarding county loan limits.

During the period of construction, the builder is charged with the responsibility of covering monthly only payments on the loan. This ensures a win-win situation for both parties – builder and owner. This is so as the builder is assured of getting paid while securing the job is completed on time without compromising on quality.