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What's the FHA Construction Project Loan?

The Federal Housing Authority delivers a construction job loan for homeowners who want to purchase a home that is need of modernization or repair. The loans may be used to finish unfinished rooms, construct decks or complete major electrical or HVAC repairs. The objective of the construction project loans is to increase homebuying opportunities and to stimulate the revitalization of neighborhoods that have houses in need of repair.


Typically when homebuyers purchase a home in need of repair, they must obtain financing to purchase the home and get separate finances to rehabilitate the property. After the repairs are complete, the purchaser can seek a permanent mortgage for your home. By comparison, the FHA Section 203 (K) construction job loan gives debtors the ability to acquire a single mortgage that funding the purchase of the home and the impending improvements. Such loans could be fixed or adjustable-rate, depending on the loan conditions.

Eligible Properties

To be qualified for the FHA construction job loan, the dwelling must be a one-to-four-family owner-occupied home or a condo. A multi-family home with more than four units can qualify whether the funds are being used to reduce the amount of units. If demolition of the house is intended, a portion of the original foundation has to be left intact. In regard to condos, the FHA funds may only be utilized for interior renovations or repairs, not outside structure, that’s the duty of a condo association.

Eligible Improvements

The FHA construction job loan isn’t readily available to homebuyers who would like to create luxury improvements to their houses. Acceptable improvements include painting, room additions, deck building, room remodeling, and the accession of energy-efficient appliances. Before aesthetic improvements could be made, the funding has to be used to deal with all health, safety and energy conservation issues in the house. Mandatory improvements include the addition of smoke detectors in each dwelling and sleeping place and compliance with energy conservation standards.

Construction Strategies

Before funding can be approved, the homeowner should provide architectural exhibits that show the proposed plan and cost estimates for the rehab project. The cost estimate should include both labour and materials–even in the event the homeowner intends on creating the improvements himself. This ensures there is cash in escrow in case a sub-contractor needs to be brought in to finish the repairs. Along with the detailed construction plans, homeowners should have a home inspection to ensure there is no pest damage or infestation, no health or security concerns that produce the house uninhabitable, without any major difficulties with the electric, heating, heating or other major systems.

Locating a House

Once a home has been identified for purchase, the prospective homeowner and her real estate agent should do a thorough analysis of the property to determine the essential repairs, a price estimate for your job and the estimated value of the home following the repairs are complete. In order for the investigation to be positive, the price of the home plus the essential repairs must be significantly less than the value of the home once the repairs are complete. At this point, a revenue contract could be signed, which hinges the sale of the house on the prospective homeowner’s acceptance of an FHA construction project loan.

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