Build Your Dream Home with FHA 1 Time Close Construction Loan
FHA offers a number of construction loans and people who are not aware of these tend to get confused between the various options. FHA 1 Time Close Construction Loan, commonly known as a FHA 203b loan, is one of the most common type of mortgage in the U.S. This loan program can be used to refinance or purchase a new or existing condo, town home or 1-4 unit structure, located in rural or urban areas.
About FHA 1 Time Close Construction Loans
The FHA 203b program offers mortgage insurance for the borrowers willing to purchase or refinance a primary residence. These mortgages are also insured by HUD and funded by private lending institutions. The FHA 203b loans are available with a 15 or 30 year loan term.
The FHA 1 Time Close Construction Loan can also be used for any site-built home, which includes the purchase of the land as well. To qualify to this loan program, the borrower must meet certain guidelines and most of these are similar to the standard FHA guidelines.
The borrower needs to use the property as the primary residence and the FHA OTC (one time close) program cannot be used for investment properties. The credit guidelines are same as that for standard FHA loans. This means if you are able to qualify for a regular FHA loan, you will not have any problem qualifying for FHA OTC loans. It is easier to qualify for this loan program because the qualifying requirements are very flexible and also because FHA backs these loans.
Though FHA does not offer you with a zero-down payment option, the down payments required are lower than any other conventional loan program. You just need to put down 3.5% and seller is allowed to contribute (6%) towards the closing costs. If the borrower is building a home on a plot that they own, they can use land equity for down payments. This also means the borrower will be able to buy or build a home with minimum cash out-of-the pocket. The eligible debt-to-income ratio is 55%, though qualifying with 57% DTI ratio is also possible.
Applying for FHA 203b Loans
The FHA 203b Loans are available for first-time buyers as well as repeat buyers. This loan programs is beneficial for borrowers who are incapable of qualifying for conventional loans that require 20% down payments. If you are one of them, here is how you can apply for FHA 1 Time Close Construction Loans:
- Check your credit scores. A minimum of 580 or more credit score is required so keep a check on your FICO scores on a regular basis.Borrowers with scores lower than that have qualified but they have to pay higher down payments.
- Start saving for the 3.5% down payment. This is applicable for borrowers with credit scores 580. People with scores lower than that have to pay 10% down payments.
- Locate an FHA approved lender. FHA 203b loans are available with selected FHA approved lenders. The interest rates and loan costs may also vary, so take time to choose the right lender.
- Know the FHA 203b loan limits for your area and ask about the loan costs.
- Submit your application to a lender with all the required documents
- Have an appraisal done (you may have to pay for the appraisal).
Once all the formalities are over, the loan underwriter will check your application and then close the loan if everything is in place.
To know more about FHA 1 Time Close Construction loans, talk to our home loan experts today!