The Federal Housing Administration (FHA) does provide construction loans for both new construction and rehab projects. The FHA's one-time closed mortgage provides funding for new construction for traditional site-built homes as well as manufactured or modular homes. FHA 203(k) loans are available to buyers who purchase damaged or older homes in need of repair.
The FHA's one-time close mortgages allow buyers to finance the construction of new homes and then refinance the loans into typical mortgages once construction is complete. By converting a construction loan into a mortgage through one closing, the process is much simpler and typically less expensive than having two separate loans.
As of 2015, these loans require low 3.5% down payments and are available to buyers with FICO scores as low as 580. If the land is owned, its equity can go toward the down payment. FHA one-time close mortgages do not require any payments during construction. First mortgage payments are made 60 days after the final inspection or certificate of occupancy. Loan maximums range from $271,000 to $750,000, and they vary by county. Closing costs are rolled into the loan, and the interest payments during construction can also be rolled into the loan.
FHA-insured 203(k) mortgages apply to the rehabilitation and renovation of existing homes, even if they are completely rebuilt from the foundation. These loans allow homeowners to finance both the purchase (or refinancing) of a house and any costs to renovate it through one mortgage, or to finance the rehabilitation of their current home.
The most common type of FHA 203(k) loan is given for properties in need of structural repairs, such as a new roof, a room addition, kitchen renovations or a new deck. FHA also offers streamlined 203(k) mortgages for non-structural repairs, such as painting or new appliances.