One-Time Close Construction Loans and Well Water

November 11, 2019

If you want to build on your own land using an FHA One-Time Close construction loan, there are some FHA appraisal requirements the property must meet in order to pass the final walk-thru or compliance inspection.

Those requirements include directions to be connected with the local water utility, “whenever feasible.” But in some cases, even a new construction home may require the consideration of a well instead of connection to a local utility.

Did you know that for real estate purchases with an FHA loan, there are appraisal requirements set by the FHA which affect existing construction as well as new construction real estate? What follows is NOT an exhaustive list of appraisal rules for wells (including shared wells), since you will also have to check with the local health authority to make sure the well is acceptable.

FHA loan rules do not include a comprehensive listing of all water requirements for state and local jurisdictions, so borrowers and brokers alike may need to contact the local authority to learn what the most current rules are.

FHA appraisal rules never override the local requirements, and it’s good to keep in mind that there are basically two sets of standards (FHA and local requirements) which must be researched.

FHA loan rules for One-Time Close construction loans that include the use or creation of a well include environmental requirements as well as pressure and volume standards for the water delivered. New construction loans require the following where a well is concerned:
 

• Lead-free pipes;
• Must meet state or local chemical standards;
• Must meet state or local bacteriological water standards; 
• Wells must deliver water flow of five gallons per minute in a minimum four-hour period.

Shared wells, regardless of whether they are associated with a new construction or existing construction property, must meet requirements including:
 

• Existing wells must deliver water at between three and five gallons per minute;
• There must be “no exposure” to environmental contamination;
• There must be a continuous supply of safe, drinkable water;
• Domestic hot water must be provided;

Water quality must meet local jurisdiction or the EPA standard if no local rules exist.
Talk to your loan officer about any associated requirements with an FHA construction loan that requires the use or installation of a well to learn what local standards may be in effect.


 FHA, VA, and USDA: One-Time Close Loans

Want More Information About One-Time Close Loans?

We have done extensive research on the FHA (Federal Housing Administration), the VA (Department of Veterans Affairs) and the USDA (United States Department of Agriculture) One-Time Close Construction loan programs. We have spoken directly to licensed lenders that originate these residential loan types in most states and each company has supplied us the guidelines for their products. We can connect you with mortgage loan officers who work for lenders that know the product well and have consistently provided quality service. If you are interested in being contacted by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.
 
FHA.com provides information and connects consumers to qualified One-Time Close lenders in an effort to raise awareness about this loan product and to help consumers receive higher quality service. We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.
 
Please note that investor guidelines for the FHA, VA, and USDA One-Time Close Construction Program only allows for single family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes). In addition, the following homes/building styles are not allowed under these programs:  Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.
 
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1. Send your first and last name, e-mail address, and contact telephone number.
2. Tell us the city and state of the proposed property.
3. Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good - (640-679), Fair – (620-639) or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.
4. Are you or your spouse (Co-borrower) eligible veterans? If either of you are eligible veterans, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio per VA will allow – there are no maximum loan amounts as per VA guidelines.  Most lenders will go up to $750,000 and review higher loan amounts on a case by case basis.   If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.