When you think of buying your first home, you likely imagine buying a pre-built house that may or may not fit your idea of your dream home. And, like most buyers, you’ll need to look into first-time homebuyer loans to finance the purchase.
Though this is certainly the most common way to get into a new house as a first-time buyer, it’s not the only option you have. Believe it or not, you can take out a building or construction loan as a first-time buyer.
You just need to know how the process works if you’re considering building a custom home that fits your needs perfectly. Here’s what you need to understand before you start looking for financing.
The FHA Issues Construction Loans
Though the FHA mostly issues standard first-time homebuyer loans designed to help you get into a pre-built house without forcing you to have perfect finances, they also issue construction loans. These loans offer many of the same benefits as traditional FHA loans.
You’re able to borrow money as long as you can make a 3.5 percent down payment on the project and satisfy the minimum credit score requirements specified by your lender. These construction loans allow you to finance a complete home build or to cover the cost of renovations and repairs to transform a rundown pre-built house into the home of your dreams.
You’ll Need to Work With a Licensed Contractor
Unfortunately, the FHA does have strict requirements about who can do the work on your home. You can’t use the loan to finance a DIY build or renovation. You must work with a licensed contractor and be able to provide the lender with copies of the estimates or bids you receive from your preferred contractor. They’ll use those estimates to better determine a maximum loan amount.
FHA Construction Loans Will Convert to Standard Mortgages
Once you finish work on the property, these first-time homebuyer loans then convert to traditional FHA mortgages. Depending on your finances and the lender you choose, you’ll have between 15 and 30 years to repay the loan in full plus any interest accrued over the loan’s term.
Learn More Today
Using FHA first-time homebuyer loans to finance the construction of your dream house is a great option. Just make sure you’re working with a lender that understands your goals and is willing to work with your financial situation. Contact our team to discuss your needs and learn more about these loans now.
