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On October 22nd, 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

October 27, 2020

FHA Modifies New Construction Loan Guidelines
On October 22nd, 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.

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