FHA and New Construction

AMG Note: We don’t normally do a lot of guest posts on this blog. However, when Kat Sanders contacted me and asked I felt it was worth a try. So, here is one of her first posts.


FHA loans are some of the most sought-after loans when people are planning to buy a home, more so now because of the fiasco that happened with the sub- prime market. For the uninitiated, a Federal Housing Administration (FHA) loan is one that is administered by the federal government for people who fit in the low income bracket. The FHA does not actually give out the loans; it only insures the loans provided by private lenders.

FHA loans are perfect for those who are buying a home for the first time and don’t have too much money to offer as down payment. It also helps that monthly installments are not too high and that they do not fluctuate beyond one or two percentage points (if you go in for an adjustable rate loan).

The FHA Construction/Rehabilitation 203(k) loan is available if you want to buy an existing home and perform any renovation work on it or add to the existing building. The FHA does not insure loans for building new homes, ones where you want to buy the land and secure finance for the materials, labor and the design. However, if you are planning to build a new nursing facility or a home for the aged and infirm, the FHA 232 loan allows you to borrow money for the construction costs.  You can also take out a loan to buy an existing facility and renovate or improve it.

If you are looking for a way to build a new home with an FHA loan, you could apply for the 203(k), buy an old house, tear it down completely, and then build the house of your dreams. If not, you’re better off choosing a construction loan offered by private lenders, or you could go in for the HomeStyle loan offered through lenders who are approved by Fannie Mae.


This article is written by Kat Sanders, who regularly blogs on the topic of construction management degrees at her blog The Fixer-Upper Blog. She welcomes your comments and questions at her email address: [email protected]


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