The FHA construction loan offers many benefits to borrower that wish to build their own home. Advantages include a small required down payment as low as 3.5%, no mortgage payments during the construction process, flexible credit guidelines and low mortgage rates. This program is a Stick Built Home Construction Loan or even a Manufactured Home Construction Loan.

List of FHA construction loan benefits

The FHA construction loan program has several advantages however there are some downsides as with all loan programs. The FHA insures mortgages for banks and lenders which allows for flexible credit guidelines however it does come as a cost. There is a 1.75% fee that is added to your loan amount at the closing called up front mortgage insurance. Additionally there is a monthly mortgage insurance premium similar to that on conventional mortgages which is paid to the FHA for insuring your mortgage.

Loan Limits

Another downside to the government insured construction mortgage is that the loan amount is limited based on the county and state of the property. The loan limits start as low as $271,050 and go as $721,050 in high cost areas like Hawaii. Any amount to build the home above this limit would need to be paid for in cash by the borrower.

Downsides to the FHA construction loan include: