When building a new property versus purchasing an existing property, you may mistakenly assume that a conventional mortgage is your only option. The good news is, FHA offers new construction mortgages! There are many key differences between conventional and FHA new construction mortgages, which are detailed below.
Loan limits for FHA vary from conventional loans. Limits also vary based on the particular county. It is useful to know the limits that apply to your location beforehand. Inquire with your mortgage company for current information as the limits ordinarily change each year.
Money Required for Down Payment
The lowest down payment for FHA mortgages is 3.5%, compared to 5%-10% for conventional mortgages. Additionally, down payment and closing expenses may be gifted from a member of the family. Verification of where the gift came from may be requested.
More documentation is typically necessary with an FHA new construction mortgage. FHA underwriters want to complete their due diligence. As with all mortgages, lenders will closely review your eligibility and credit profile too.
The appraisal for an FHA mortgage is typically more than for other loans. This is because they needs to be FHA authorized and the process is more involved. With new construction, appraisers must review specifications to determine a value. An inspection prior to closing is also typical to confirm that the home built is consistent with the plans.
Many mortgage companies remove application fees. However, a fee is required for an FHA new construction mortgage. The charge will differ based on the type of property you are building.
More On FHA Mortgage
FHA Mortgages were created to make home ownership possible to a larger group of people. They are often a preferred program for a majority of first time home buyers. FHA new construction mortgages have a few extra steps than other mortgages but is a helpful option for new homes. Call your mortgage professional for more specific information on this program and to find out whether it is a good fit.