Building Your Home with an FHA Construction Loan

Building Your Home with an FHA Construction Loan

Getting an FHA construction to permanent loan is a wonderful opportunity to build the home you want, with a lower down payment than most lenders require on a construction loan.

In this article we’ll cover all the main points you need to understand if you’re looking to build a home from the ground up with an FHA construction to perm loan.

How to Get an FHA Construction to Perm Loan

When existing home inventory is low, building your own home is often a very attractive idea. You get to select the location, the builder, the floor plan, the paint colors… everything! The problem is that most lenders want 10-25% down payment when considering terms on a construction loan.

With an FHA construction to permanent loan the down payment can be as low as 3.5%.

This low down payment option is extremely encouraging news to many borrowers looking to build a home.

Here are the top things you need to understand when considering an FHA Construction to Permanent Loan


First and foremost, you need to make sure you’re eligible for an FHA loan.non-warrantable condo

Get pre-approved to make sure you meet all income, credit, and asset guidelines. If you don’t meet normal FHA guidelines, there is no sense in seeking an FHA construction loan.

The good news is that FHA guidelines are less strict than other traditional mortgages, so many times it’s just a matter of getting a few ducks in a row to get the qualification in line.

Selecting Your Builder

Once you have gotten confirmation that you’re eligible for FHA financing, you’ll need to find the right builder for you.

You’ll want to see what work they have done in the past, how long they have been in business, what types of projects they are willing to take on, and how long they typically take to build a home with the same characteristics you’re seeking.

A very important thing to keep in mind is the chemistry you have with the builder. You’ll be communicating with this person heavily over the next 6-12 months. It’s super important that you feel comfortable with your builder from an experience and service standpoint.

Builder Approval

After you have selected the right builder to meet your needs, it’s time to get that builder approved with your lender.

With an FHA construction to permanent loan, not only do you have to be approved as a borrower, but the builder also must go through a detailed approval process. They’ll need to provide things like: references, two year’s tax returns, a year to date profit and loss statement, applicable licenses, and more.

Depending on the builder, this approval process could take 2-12 weeks. It really just depends on the availability of the builder to provide the documents needed.

Site Selection

If you have been pre-approved, and your builder has been approved, things are certainly moving in the right to permanent loan lenders

At this point it’s time to select the right lot to build your home on. With an FHA construction to perm loan you can finance the land and the construction all in one loan. If you already own the land, even better. You are able to use the equity that you have toward down payment.

Example: you own a 2 acre parcel that you are looking to build on. Let’s say the lot is worth $20,000 and you own the land free and clear. The 20K in existing equity can be used as collateral toward your down payment.

Very important – FHA does NOT allow any value to be given to any existing buildings on the lot.

The appraised value of the lot will be based on raw land. If you have a barn on the land worth 20K, and the land is worth 20K, that does not mean FHA will consider it to be a full existing value of 40K. Only the land can be considered with regard to existing equity.

Project Approval

Once the site is selected, it’s time to get set figures from the builder regarding what the costs are going to be from start to finish.

When you have come to terms with the builder on the numbers, the lender will review the construction agreement and structure your loan accordingly. FHA does NOT allow the borrower to be involved with the construction in any way.

The builder must be responsible for all construction and improvements in the construction agreement. The borrower cannot act as the builder.

Loan Structure

FHA loans have limitations on how high the loan can be in each county in each state.

FHA construction to permanent loans are no different with regard to county loan limits. Here is a site that tends to keep county construction to permanent loan lenderslimits up to date.

During the construction period, the builder is responsible for covering monthly interest only payments on the construction loan. This creates a win/win scenario for builder and borrower. It’s a win for the builder because they know they payment will be made (they don’t have to rely on the borrower making payments to keep things moving along).

It’s a win for the borrower because if the builder is responsible for payments, they are more likely to treat the build with urgency because they don’t want to be stuck with carrying the construction loan payments for more months than necessary.

Once the home is completed, the loan is converted to the FHA loan for the borrower to begin making payments on.

Construction Contingency

There are typically changes to the materials or slight modifications to the specifics in the contract causing overages on top of what was originally estimated.

Construction contingencies are available for project cost overruns and borrower change orders. Basically, whatever the estimated cost and labor is, the lender will increase that estimated amount by 5% to account for unforeseen extras. If the funds are not used, the difference will be applied toward the principal balance (the loan will have a lower balance at the time it is converted from construction to permanent).

One Time Closeconstruction to permanent loan lenders

There are two different types of construction loans: one time close, and two time close.

A two time close means you get approved, get appraisal, and close on the construction loan. Once construction is complete, you get approved all over again, get another appraisal, and then close on your permanent loan.

With the FHA product, it’s a one time construction loan. This means you do NOT have to go through the process twice. You get approved up front, get appraisal up front, and close. Once the construction is completed, final inspection is done, a certificate of occupancy is provided, and the construction loan is converted into a permanent loan.

You do not have to get approved all over again on a one time construction loan.

Basic steps toward your FHA Construction Loan approval:

  • Get pre-approved
  • Get builder approvedfha construction loan
  • Select your lot
  • Complete construction/purchase agreement with builder/seller
  • Get project approved through lender
  • Complete loan approval (complete conditions with lender, appraisal, title, etc.)
  • Close on construction loan (provide down payment/costs/escrows)
  • Begin construction
  • Construction complete
  • Move into your newly built home, begin making payments on your FHA loan

Building a home is not a good fit for everyone.

There is more to manage and more decisions to be made when building a home than when buying an existing home. But if you are considering building a home, an FHA construction to perm one time close loan may be a great option for you to consider.

Post About FHA Construction Loan

For more information check out Understanding the building Process


Considerations To Take During Modular Home Customization

Modular Home CustomizationModular home is a durable and quality abode that is completed faster and priced much lower than the traditional homes. You need to communicate your personalized preferences to the contractor to receive a fully customized home.

There are certain aspects you need to keep in mind when it comes to modular home customization. Some of the things that you must consider are as follows:

Budget for Modular Home Customization

Budget is one of the most important factors that you cannot afford to overlook while choosing a suitable house floor plan for your modular home. Houses, which are big, will cost you more. So, you must make a calculative move before you end up spending everything you had saved over the years.

Size of your Modular Home

You must consider the size of your home during modular customization. This will determine the style and number of bedrooms and bathrooms you will require in your home. You must also keep in mind the possibility of expansion of your home in the future while designing modular home.

Lifestyle Preferences

When customizing your home, you must also consider the lifestyle preferences. Will you work from home or need a separate office space? Do you need a separate space for family gathering, so that you can watch movies together?

Above all, remember that you will certainly get plenty of options for modular customization. Look for designs that will be the most livable for your family.

In case you still have questions about modular homes, you may contact Legendary Homes Inc in Jackson, Michigan. A representative will be happy to assist you. Meanwhile, you can check our modular home price sheets by signing up to our blog.

Topic: Modular Home Customization

Does FHA Loan Caters Both Modular Home Construction and Customization?

Modular Home Financing thru FHA Loan in MichiganThe FHA loan is a government insured loan which allows a little more flexible modular home construction loan than the conventional loan. FHA loans do have a few more requirements than the conventional loan, such as mortgage insurance. The FHA loan is geared for both the construction and customization of modular home in Michigan.

FHA Loan Program

The FHA loan program offers two loans, one for home improvements and another for purchase of a modular home, for those who might not otherwise qualify for a conventional loan. That is the reason why it seems there’s nothing the government won’t do to encourage modular home ownership or modular home customization.

FHA approved lenders in Michigan make loans to eligible borrowers to finance property customization or purchase of a modular home, and HUD insures the lender against loss if the borrower defaults. Credit is granted based on the applicant’s credit history and ability to repay the loan in regular monthly payments.

Interest Rate of FHA Loan

These are not low interest rate loans, the rate is based on the prevailing interest rate in your area at the time loan is made. The maximum modular home customization loan for a single family home is $25,000. The maximum home purchase loan for a modular home is $48,600, $16,200 for a developed lot on which to place a modular home, and 64,800 for a modular home and lot in combination.

Term of FHA Loan for Modular Home

The maximum term for a property customization loan on a single family home is 20 years. The home purchase loan term may not exceed 20 years for a manufactured home only. Modular home lot loans are limited to 15 years. A loan on a single-module home and lot is limited to 20 years, while a loan on a multi-module home and lot can extend to 25 years.

Downpayment of FHA Loan for Modular Home

A loan on a new modular home requires a minimum cash down payment of five percent of the first $5,000 of the purchase price and 10 percent of the balance. The same down payment is required on all combination loans, whether the home is new or existing. The minimum down payment on an existing modular home loan or home lot loan is 10 percent of the purchased price.

In case you still have questions about modular homes, you may contact Legendary Homes Inc in Jackson, Michigan. A representative will be happy to assist you. Meanwhile, you can check our modular home price sheets by signing up to our blog.

Topic: Modular Home Financing, FHA Loan

Benefits and Limitations of FHA Loan for Modular Homes

Affordable Modular Home thru FHA Loan in Southern MichiganModular home buyers can buy the land on which the home will sit thru FHA loan. The Federal Housing Administration (FHA) insures both modular home loans and the land loans for people buying prefab homes.

FHA Loan Funding and Insuring

Before the FHA will insure the loan for the modular home, it must be installed correctly according to state, county or the local jurisdiction’s codes. One of the benefits of using the FHA loan for a modular home purchase is that this agency provides two levels of consumer protection. The first is the placement and setup of the home, and as noted above, because the FHA not insures the loan until it passes inspection.

The second benefit is that the FHA loan will help consumers with warranty issues. Most modular homes come with one-year warranties. Since the homes are transported, they may need repairs for incidental cracks in the windows or walls. Buyers of modular homes can contact FHA during the first year with assistance for warranty work from the seller of the home. But remember that FHA involvement in warranty protection is just for new modular homes.

FHA Loan Limits

The terms of the FHA loan are shorter than loans for site-built or modular homes. FHA requires the loan for the modular home to be 20 years or less, while the loan for the land can only be for 15 years. When buying a lot and a modular home together, the loan period is 25 years.

Since modular home construction is less costly to build because they are constructed off-site, they are less expensive to buy than most site-built homes. In areas of higher priced homes and real estate, the FHA allows those limits to increase up to 85 percent for both the home and land.

In case you still have questions about modular homes, you may contact Legendary Homes Inc in Jackson, Michigan. A representative will be happy to assist you. Meanwhile, you can check our modular home price sheets by signing up to our blog.

Topic: Modular Home Financing, FHA Loan

Facts about FHA Loan Every Modular Home Owners Need

Modular Home Financing thru FHA Loan in MichiganHere are some facts about FHA loan for modular homes.

An FHA home loan allows a low down payment

Conventional lenders usually require a 20% down payment; you can pay less but are then required to buy private mortgage insurance for the lender’s benefit. That can add to your monthly payment.

FHA loans are easier to qualify for

Lenders who work with the FHA are willing to give you a break because the government is standing behind your FHA home loan. That gives first-time modular home buyers a real opportunity, as well as residents of disadvantaged neighborhoods, who can find obtaining a mortgage a real challenge.

FHA loan for modular homes has lower interest rates

In addition to lower down payments, FHA-guaranteed loans generally have lower interest rates. Since the FHA does not actually provide the financing or determine the interest rates of the loans it backs, the rate you pay for an FHA home loan will be negotiated with an FHA-approved lender.

FHA Loan can help you make home repairs and upgrades

An FHA loan or refinance is possible. To start, the Energy Efficient Mortgage (EEM) program can help you lower your utility bills by financing the cost of adding energy efficient improvements to your home. But other home improvements can be financed through an FHA insured loan, as well.

FHA loan has lower closing costs

Anyone that has purchased a home knows there are a lot of fees due at closing. Appraisal fees, inspection, credit report and broker fees and commissions, origination charges – it can be a mighty long list. While the FHA doesn’t regulate or determine fees, the closing costs for an FHA loan are generally lower than with a conventional mortgage.

In case you still have questions about modular homes, you may contact Legendary Homes Inc in Jackson, Michigan. A representative will be happy to assist you. Meanwhile, you can check our modular home price sheets by signing up to our blog.

Topic: Modular Home Financing

Pros and Cons of FHA Loan for Modular Home Construction

Modular Home Financing with FHA LoanAn FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). It has come a long way to help home buyers.

An FHA loan has a number of pros and cons that you need to consider.

Pros of FHA Loan

Typically an FHA loan is one of the easiest types of mortgage loans to qualify for because it requires a low down payment and you can have less-than-perfect credit. An FHA down payment of 3.5 percent is required. Borrowers who cannot afford a traditional down payment of 20 percent or can’t get approved for private mortgage insurance should look into whether an FHA loan is the best option for their personal scenario.

Another advantage of an FHA loan is that it can be assumable, which means if you want to sell your home, the buyer can “assume” the loan you have. People who have low or bad credit, have undergone a bankruptcy or have been foreclosed upon may be able to still qualify for an FHA loan.

Cons of FHA Loan

You knew there had to be a catch, and here it is: Because an FHA loan does not have the strict standards of a conventional loan, it requires two kinds of mortgage insurance premiums: one is paid in full upfront – or, it can be financed into the mortgage – and the other is a monthly payment. Also, FHA loans require that the house meet certain conditions and must be appraised by an FHA-approved appraiser.

In case you still have questions about modular homes, you may contact Legendary Homes Inc in Jackson, Michigan. A representative will be happy to assist you. Meanwhile, you can check our modular home price sheets by signing up to our blog.

Topic: Modular Home Financing, FHA Loan

Requirements of FHA Loan for Modular Home Buyers

Modular Home and FHA Loan in MichiganFHA defines a modular home as “a structure that is transportable in one or more sections. And they set a number of requirements to successfully have a FHA loan.

An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). Essentially, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments. The following are the requirements on how to apply for FHA loan.

Residency Requirements

The person applying for FHA loan for his modular home should have a valid Social Security number, lawful residency in the U.S. and be of legal age to sign a mortgage in your state. Remember that it new loans are only available for primary residence occupancy.

FHA Loan Down- payment

Must make a minimum down payment of 3.5 percent. The money can be gifted by a family member.

Good Credit Score

Minimum credit score of 580 for maximum financing with a minimum down payment of 3.5 percent. Typically you must be two years out of bankruptcy and have re-established good credit. Exceptions can be made if you are out of bankruptcy for more than one year if there were extenuating circumstances beyond your control that caused the bankruptcy and you’ve managed your money in a responsible manner.

Modular Home Complies with Standards

Also, an FHA loan requires that a property meet certain minimum standards at appraisal. If the home you are purchasing does not meet these standards and a seller will not agree to the required repairs, your only option is to pay for the required repairs at closing.

In case you still have questions about modular homes, you may contact Legendary Homes Inc in Jackson, Michigan. A representative will be happy to assist you. Meanwhile, you can check our modular home price sheets by signing up to our blog.

Topic: Modular Home Financing

Why Finance your Modular Home with FHA Loan

Modular Home and Mortgage LenderFHA loan is not perfect, but they are a great fit in some situations especially with modular home financing. The main appeal is that they make it easy to buy property, but don’t forget that those benefits always come with tradeoffs. Here are some of the most attractive features:

Lower Down Payment

FHA loans allow you to buy a modular home with a down payment as small as 3.5%. Other loan programs generally require a much larger down payment.

It’s easier to use gifts for downpayment and closing costs. In addition, sellers can pay up to 6% of the loan amount towards a buyer’s closing costs. You’re most likely to benefit from that in a buyer’s market, but those do come around from time to time.

Lower Cost Interest Modular Home Loan

A modular home buyer can “take over” your FHA loan if it’s assumable. That means they will pick up where you left off – benefiting from lower interest costs. Depending whether or not have changed by the time you sell, the buyer might also enjoy a low interest rate that’s unavailable elsewhere.

A Chance to Reset

If you have recently come out of bankruptcy or foreclosure, it’s easier to get an FHA loan than a loan that does not come with any government guarantee (two or three years after financial hardship is enough to qualify with FHA).

In case you still have questions about modular homes, you may contact Legendary Homes Inc in Jackson, Michigan. A representative will be happy to assist you. Meanwhile, you can check our modular home price sheets by signing up to our blog.

Topic: Modular Home Financing

Steps to a Veteran’s Guaranteed Modular Home Loan

Affordable Modular Home in Southern MichiganThe main purpose of the VA loan program for modular home construction is to help veterans finance the purchase of homes with favorable loan terms and at a rate of interest which is competitive with the rate charged on other type of mortgage loans.

The following steps should help you to understand what VA can and cannot do for the modular home purchaser.

Find the property suitable for your needs.

Go to a lender, and apply for the loan.

Present your discharge or separation papers relating to latest period of service and/or a Certificate of Eligibility.

Property is appraised by approved appraiser.

Estimate of property’s reasonable value is determined.

If application is approved, you get the loan.

In case you still have questions about modular homes, you may contact Legendary Homes Inc in Jackson, Michigan. A representative will be happy to assist you. Meanwhile, you can check our modular home price sheets by signing up to our blog.

Topic: Modular Home Financing

Key Factors to Have a VA Loan for Modular Home

Modular Home Financing thru VA Loan in MichiganVA loan for a modular home approval may be easier than many think. Understanding the key factors help you on the VA home loan process.

VA Entitlement

Borrowers must, first and foremost, be eligible for VA loans for modular home. This means they must have satisfied the service requirements and have enough “entitlement” available to be considered for a VA loan. Entitlement is a word used to refer to the amount the VA will guarantee for a particular veteran borrower.

Modular Home Property Eligibility

The lender’s handbook states that VA modular home loan benefits are to be used mainly for owner-occupied properties. The VA lists single-family homes, VA-approved condos, townhouses and multi-family modular homes as properties generally eligible for VA financing. The VA also guarantees the financing of modular homes if they are attached to a permanent foundation; but not all lenders offer VA loans for modular homes.

Length of Occupancy

By law, VA borrowers must occupy the homes they finance. VA borrowers must verify that they will occupy their homes within a reasonable time. For most, this means within 60 days after closing. Borrowers who are deployed away from home may receive an extension of up to 12 months. A spouse is the only relative that can satisfy the occupancy requirement in a VA-eligible borrower’s stead.

Income & Credit

VA-eligible borrowers must qualify for the loans they obtain. Veterans must have steady and ample income and satisfactory credit. Lenders are given some flexibility to decide whether a borrower is a safe credit risk within VA guidelines. VA-approved lenders may set their own credit score minimums. The VA recommends borrowers have no more than 41% debt-to-income ratio and at least enough residual income to cover typical living expenses.

In case you still have questions about modular homes, you may contact Legendary Homes Inc in Jackson, Michigan. A representative will be happy to assist you. Meanwhile, you can check our modular home price sheets by signing up to our blog.

Topic: Modular Home Financing

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My wife and I were blown away by the Legendary Homes website. Todd has done an outstanding job displaying so much information. We met with Todd and his wife at the model home and were very impressed with the home. They were extremely friendly and knowledgeable. We look forward to working with them in the future.

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Todd did a great job answering all of our questions. The model home was absolutely beautiful!

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Had lots of information about their beautiful homes and tons of options on everything great service!

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My wife and I had a meeting with Todd, going over homes and price lists. We both came away from the meeting hoping we can find some land so we can build our future home.

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Very happy with our new home! Todd helped us every step of the way. He answered any and all questions right away, great communication. Very pleased

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William Wilson

Todd was a pleasure to meet with...We've been looking for quite some time to purchase a home, but this seller market has been tough, so we decided to look into modular homes. Todd was able to get us into a consultation quickly, answered all the questions we had for beginners, broke down the pricing and potential unanticipated costs, and presented us with a great deal of material to go home with and review. Eventhough we were able to get an offer accepted on a home within a couple days of meeting with Todd, we will definitely be considering a modular home with Legendary Homes for our future purchase. Thanks Todd!

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I cannot say enough good things about Todd Rutledge & Legendary Homes. I was frustrated with the running around, people trying to take advantage of my lack of knowledge and the time that I had to spend researching what I needed to do in order to make my move a reality. Then I found Todd. He gave me the information & tools that I needed, he understood & worked with my budget & he showed great professionalism. He was timely & considerate. But most of all, he showed great integrity. I know that I can trust him to look out for my families best interest. He went above and beyond. Thank you Todd!!

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Sherry Phillips

I appreciated Todd taking the time to speak with me at the model house about the various options and things to consider when building a home. He was clear, direct, and easy to work with. Legendary Homes works with Redman Homes, which offers solid construction and just a few decisions to make in terms of finishes. For those who get analysis paralysis, this is a blessing! Definitely worth a look if a solid, simple home is the goal.

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