Build a House on Your Own Land
April 10, 2022
FHA home loan rules in HUD 4000.1 include a section titled “Building on Own Land”. Are you interested in having a house built for you on your own lot instead of having to choose from existing construction housing? Building on your own land may be for you.
Definition
Page 457 of the revised (in 2019) HUD 4000.1 is where the rules and guidelines for building on your own land are found, starting with the FHA definition of the term:
“Building on Own Land refers to the permanent financing of a newly constructed dwelling on land owned by the Borrower and may include the extinguishing of any construction loans.”
That is from HUD 4000.1. One thing that we’ll mention frequently in this article is the fact that individual lender requirements may apply for these loans; what may be permitted in the FHA rules for the program may not necessarily be offered by a lender.
Some Features or Loan Options May Vary
What do we mean? Consider the next set of instructions to the lender under the Building On Your Own Land heading; eligibility for the loan.
“The Borrower must have contracted with a builder to construct the dwelling. The builder must be a licensed general contractor.” No problems there, fairly straightforward. But the next line in the rulebook states, “The Borrower may act as the general contractor, only if the Borrower is also a licensed general contractor.”
You will find plenty of lenders who don’t want to issue loans when the borrower plans on being their own general contractor.
Shopping around for a loan to build from the ground up may mean taking some extra time to find a lender who will let you do your own work if that’s what you want or think you want to do. But the pool of available lenders who might allow this could be quite small.
Calculating the Maximum Mortgage Amount
For FHA mortgages that involve building on your own land, the lender is required to use “the lesser of the appraised value or the documented Acquisition Cost to determine the Adjusted Value.”
Furthermore, FHA loan rules say your maximum mortgage amount is calculated “using the appropriate purchase Loan-to-Value (LTV) percentage of the lesser of the appraised value or the documented Acquisition Cost.
What is the documented Acquisition Cost of the Property? It includes the following as detailed in HUD 4000.1:
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.
OneTimeClose.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: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.
Contact Us: Send Us Your Request – Spam Safe
Please send your email request to [email protected] which authorizes OneTimeClose.com to share your personal information with one mortgage lender licensed in your area to contact you.
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.
Definition
Page 457 of the revised (in 2019) HUD 4000.1 is where the rules and guidelines for building on your own land are found, starting with the FHA definition of the term:
“Building on Own Land refers to the permanent financing of a newly constructed dwelling on land owned by the Borrower and may include the extinguishing of any construction loans.”
That is from HUD 4000.1. One thing that we’ll mention frequently in this article is the fact that individual lender requirements may apply for these loans; what may be permitted in the FHA rules for the program may not necessarily be offered by a lender.
Some Features or Loan Options May Vary
What do we mean? Consider the next set of instructions to the lender under the Building On Your Own Land heading; eligibility for the loan.
“The Borrower must have contracted with a builder to construct the dwelling. The builder must be a licensed general contractor.” No problems there, fairly straightforward. But the next line in the rulebook states, “The Borrower may act as the general contractor, only if the Borrower is also a licensed general contractor.”
You will find plenty of lenders who don’t want to issue loans when the borrower plans on being their own general contractor.
Shopping around for a loan to build from the ground up may mean taking some extra time to find a lender who will let you do your own work if that’s what you want or think you want to do. But the pool of available lenders who might allow this could be quite small.
Calculating the Maximum Mortgage Amount
For FHA mortgages that involve building on your own land, the lender is required to use “the lesser of the appraised value or the documented Acquisition Cost to determine the Adjusted Value.”
Furthermore, FHA loan rules say your maximum mortgage amount is calculated “using the appropriate purchase Loan-to-Value (LTV) percentage of the lesser of the appraised value or the documented Acquisition Cost.
What is the documented Acquisition Cost of the Property? It includes the following as detailed in HUD 4000.1:
- Builder’s price OR;
- A total of all subcontractor bids and materials;
- Borrower-paid options and construction costs not included in the builder’s price to build;
- Interest and other costs associated with a construction loan obtained by the Borrower to fund construction, if applicable.
- The lesser of the cost of the land, or appraised value of the land, if the land is owned six months or less at case number assignment OR;
- Appraised value of the land if the land has been owned for greater than six months at case number assignment or was received as an acceptable gift.
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.
OneTimeClose.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: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.
Contact Us: Send Us Your Request – Spam Safe
Please send your email request to [email protected] which authorizes OneTimeClose.com to share your personal information with one mortgage lender licensed in your area to contact you.
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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