The basics of a construction loan: Construction loans can be complicated, lengthy, and involve a lot of red tape, but if the house you want is in need of repairs, it might be your best option to make your dream house a reality. Here are some basics you should know on obtaining a construction loan:
- There are 2 types: 203k Streamlined (for repairs up to $35,000) or a full 203k loan (up to $729,750, the current FHA loan limit)
- Credit score requirements: 620
- Work must be completed within 6 months of closing
- You’ll have 2 appraisals done: an “as-is” value and an “after improved” value
- Eligible properties must be 1-4 family homes or an FHA approved condo project
- You’ll need to work with an FHA consultant who will handle bids from contractors and review the work. The FHA consultant also does the inspection, since no actual home inspection will be done.
- Final approval will be needed after the work is completed prior to fund disbursements.
It can be a long, long process, but with the right people to guide you (and some patience) you should be fine!