FHA Construction Loans vs the 203K Program
There is a common misconception that the “FHA construction loan” and the FHA 203 renovation loan are one in the same. This is not true. Many lenders will tell you they are the same because those folks do not know about the true FHA construction-to-perm program. The true HUD sponsored FHA construction to perm program is different in that it allows for a completely new home to be built, either a traditional stick-built home, or, a brand new systems-built(AKA “modular) home. This is also not to be confused with a traditional FHA end loan for a newly built home. Some lenders will try and tell you they can do FHA loans for newly built homes but that is not the same either. Simply providing an FHA loan for a just-completed home is much different than a true construction-to-perm loan where by the land is acquired at initial closing with this loan, then draws are make to the builder as each phase of construction is complete. This is a true construction-to-perm loan, not just an FHA loan that acts as the “end loan”.
FHA Construction Loans – The Benefits
Many folks ask why its so hard to find a bank that will even offer construction loans these days. There are a number of reasons why construction loans are viewed as being high-risk these days but perhaps the most important one is the appraisal issue. Because of the turbulent real estate market we are in right now, if you were to get conventional construction-to-perm financing from a bank and your builder begins construction of your home, the property might very well be worth less in just the short 5 months it takes to complete the home! This is possible these days due to poor home sales in the same area negatively affecting the current value of your home which is still under construction. To overcome this, the FHA construction home loan program is a 100% true “single close” transaction. This means that there is no 2nd appraisal at the end, no re-qualifying the borrower, no re-pulling the credit report, and no re-verifying employment. Once the initial closing is complete, the borrower is essentially out of the equation until the builder finishes the home. You can use this loan to build your next dream home, and it works great with small builders as well as any of the big “track builders” such as Toll Brothers, Ryland, Pulte, D.R. Horton, and William Ryan Homes just to name a few.
What Banks offer FHA Construction Loans?
As you may have discovered already, very few banks offer the true FHA construction loans. This is because significant infrastructure is required to facilitate these unique construction mortgages including the draw center, construction/builder underwriting dept, and more. Also, the bank must be willing to lend their own funds during the construction phase and up until the home is complete, which very few banks are willing to do. Still, there are a couple good banks out there who specialize in this program. One of which is Joe Karns at Bridgeview Bank.
Author Joe Karns of Bridgeview Bank is a seasoned mortgage professional dedicated to bringing his subscribers relevant and useful information on how to compare construction lenders. Want a free construction loan consultation? Check out Joe Karns at the following link for FREE expert advice on helping you source the best FHA construction loans.