FHA New Construction Loan Updates

FHA has come out with two changes recently on new construction. A new construction home with FHA can be considered two different ways. The FHA New Construction Loan, where you are getting the loan for the builder to build the home – or we do the the end financing, and you are not getting the construction loan.

We offer the FHA Construction Loan in NC, that calls for the Builder to get their on financing.  This is typically referred to as an end loan or Permanent Loan. The trick with these kinds of loans is the locking of interest rates, while we are in a “Topsy-turvy,” one day they are up the next day down – Interest rate environment.

Because the Builder has the financing, your loan does not go into place until the house is complete – and mortgage rates could be worse by then.

An End loan is utilized when a builder agrees to provide their own financing to build the home and the home buyer simply needs to have their loan approved for mortgage financing up-front. The builder then completes the home and the home buyer comes to us to close on the transaction at the completion of their new home. We do these types of FHA Loans everyday. But again, the reason folks are not doing as many of this type of FHA New Construction Loan, is because mortgage rates are moving.

With a FHA New Construction Loan in YOUR name, as the Buyer, you CAN lock in the interest rate for your home, while the home is being built!

The new requirements that FHA just announced are for both types of mortgages, are for loans over 90% LTV. They made their requirements for all FHA New Construction Loan programs more streamlined!

Old requirement for FHA New Construction Loan was:

• Inspections/Warranties for Max Financing – Provide ONE of the following (1^st option is best):
  1. Copy of the building permit prior to construction and certificate of occupancy upon completion.  ***THIS IS THE PATH OF LEAST RESISTANCE***
  2. Three inspections performed by an FHA roster inspection on form HUD-92051 (footing, framing, final) (Removed FHA roster inspectors effective August 2, 2018)
  3. Three inspections performed by the local authority with jurisdiction (footing, framing, final)
  4. HUD-approved 10-year warranty (Remove 10 year warranty requirement 3/14/19) and final inspection issued by local authority with jurisdiction or FHA roster inspector.

New requirement for FHA New Construction Loan is:

• Inspections/Warranties for Maximum Loan Financing – Provide ONE of the following (1^st option is best):
  1. Copy of the building permit prior to construction and certificate of occupancy upon completion. ***THIS IS THE PATH OF LEAST RESISTANCE***
  2. Three inspections performed by the local authority with jurisdiction (footing, framing, final)

Here is the list of other forms required on both over 90% and FHA New Construction Loans with Loan to Values below 90%… as these forms are still an FHA requirement. (READ: This part is not a change, just trying to make a complete list for everyone here.)

Required Documentation for over 90% LTV
FHA New Construction Loan

• HUD-92541
• HUD-92544
• HUD-NPMA-99-A
• HUD-NPMA-99-B
• Water/septic tests if required by location jurisdiction

*** FHA Loans and Septic Field Requirements in NC are based upon the local and state requirements.  That being said, the minimum that most underwriters are looking for when considering FHA requirements for distances for properties with well & septic systems in NC is 75 feet. In other words they are looking for the distance between the well and septic tank drain field to be 75 feet.  Additionally, they want more than 10 feet between the system and any property lines or easements.

FHA is clear on their guidelines for distances for properties that have a well & septic system, but FHA also will make exceptions to their guidelines in certain circumstances if the distances are within the local and State requirements. This is where great up front plans with your Builder regarding the property are critical.

Required Documentation for LTV below 90%
FHA New Construction Loan

• HUD-92541
• Final inspection or appraisal showing 100% complete
• HUD-NPMA-99-A
• HUD-NPMA-99-B
• Water/septic tests if required by location jurisdiction

The New Construction Loan in NC with YOU as the one footing the bill while the home is being built is pretty straight forward. You need a minimum of 3.5% for the down payment, and you will need reserves to cover any over-run in construction costs (READ those upgraded counter tops may come out of pocket )

Interest Only payments will be collected during the construction process, based upon the total balance advanced to the Builder. The Builder will receive funds at the time of closing (the beginning of the process) and then increments as the building progresses. The Interest Only payments during construction will be based upon the balance on the first of each month multiplied by the note rate.

If you own the lot that the home is being built on, FHA requires that the lot needs to be in your name for 6 months or LESS before we can close, and begin building.  If you’ve owned the lot for MORE than 6 months, FHA Construction Loans do not work. (It’s FHA policy)

Both you and the Builder you choose for your new home must be approved for the FHA New Construction loan. The mortgage will only be in your name, however we need to know that the Builder has the financial strength and skills to get the house built on time and on budget.  We have a checklist, with pretty standard stuff a Builder would give any other Bank, to share with your Builder.

If you have more questions about the streamline system FHA put into place for the FHA New Construction Loan process, please call us. We love this program, especially with Inventories of homes available in much of NC is very low. This gives you the next 9 months to build your DREAM HOME! Steve and Eleanor Thorne 919 649 5058, or connect with us on Facebook!