Back in 2020, the FHA and HUD announced changes to the FHA loan rules for new construction loans, which are used to build a home rather than having the borrower buy an existing property previously occupied by the former owner.

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FHA.com is a privately owned website, is not a government agency, and does not make loans.

FHA Modifies New Construction Loan Guidelines

May 29, 2022

FHA Modifies New Construction Loan Guidelines
Back in 2020, the FHA and HUD announced changes to the FHA loan rules for new construction loans, which are used to build a home rather than having the borrower buy an existing property previously occupied by the former owner.

According to the FHA official site, a set of rule changes that were issued in past years intended to streamline requirements for inspections and builder’s warranties required HUD to modify other policies including the maximum loan policy for new construction loans.

Changes to HUD’s maximum financing policy for FHA New Construction loans includes, but is not limited to, the following:
  • Eliminating Early Start Letter and Pre-Approval requirements.
  • Consolidation of requirements regardless of loan-to-value.
  • Including Form HUD-92544 Warranty of Completion as a requirement for all New Construction.
  • Providing alternative inspections by a third party, who is a registered architect or structural engineer, in the absence of International Code Council (ICC) certified Residential Combination Inspector (RCI) or Combination Inspector (CI).
  • Updating when Form HUD-NPMA-99-B, New Construction Subterranean Termite Service Record is required to align it with the four acceptable termite treatment applications reflected on the form HUDNPMA-99-A.
Furthermore, the FHA and HUD are updating the FHA Lenders’ Handbook, HUD 4000.1, to reflect the following modifications to the new construction loan program with respect to new property types that are eligible for new construction loans. The following property types are considered acceptable:
  • Site Built Housing (one- to four-units)
  • Condominium units in Approved Projects or Legal Phases
  • Manufactured Housing
HUD 4000.1 is being modified to include the new guidelines; if you are not sure how these modifications affect your home loan transaction, ask your loan officer to clarify. One important thing to take notice of with these new changes--the FHA allows participating lenders to begin using these modified rules effective immediately, but also mandates that they be used for ALL FHA home loans with FHA case numbers assigned on or after January 4, 2021.

That means that if you are in the middle of a loan transaction at the time of this writing and you wonder if any of the rule changes issued by FHA/HUD affect you, your financial institution’s choice to implement the new rules now or later will be a factor. Your lender may or may not choose to implement the new rules immediately--be sure to ask if you aren’t sure whether these program modifications will affect your loan.

Construction Loans at OneTimeClose.com 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) and the VA (Department of Veterans Affairs) 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 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 and VA 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, including but not limited to: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes, Dome Homes, Bermed Earth Sheltered Homes, Tiny Homes, Accessory Dwelling Units, or A-Framed 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 $1,000,000 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.

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