FHA vs. Conventional Requirements

If you have been turned down for a conventional (Fannie Mae/Freddie Mac) construction loan, you may still qualify for an FHA construction loan. FHA requirements are more forgiving when it comes to credit, debt-to-income and down payment.


Let's start with down payment. The conventional construction loan programs I have seen require anywhere from 5% to 20% (or more) down. FHA only requires 3.5% and you can use your land equity in lieu of a cash down payment.


When it comes to credit score, you're going to need a 680-720 for a conventional loan, but only a 620 for an FHA construction loan. If you have had a major credit issue (bankruptcy, foreclosure or short sale), you are going to qualify for an FHA loan far sooner than a conventional loan. You will have to wait 4-7 years for a conventional loan vs. 2-3 years (or less) for an FHA loan.


In addition to the above mentioned requirements, FHA will expect to see that you have been "paid as agreed" in the last year on all your credit obligations. They would like to see at least 3 lines of credit, again paid as agreed, in the last year. These lines of credit can include credit that would not typically show up on your credit report. This would include your rent payment, utility and/or insurance payments. Make sure you pay these by check from an account with your name on it.


You should be able to show steady employment for the last two years. You don't have to be in the same job for the last two years but you should no have major gaps (30 days or more) of being unemployed. 


It's never too early to talk. Give me a call, and even if you don't qualify now, I'll make sure you're headed in the right direction.  

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