Articles and news about FHA loans and HUD requirements. FHA loans are great for first-time homebuyers.

FHA Loans: Buying Land

There are several reasons why a house hunter looking for a home to purchase with a VA mortgage might want to buy a piece of land. In times when the housing market is favorably inclined towards new construction loans, some buyers might want a government insured loan for a proposed construction or new construction purchase; others might want to buy a piece of land for a manufactured home or mobile home.

As with many other parts of the FHA loan process, there are some do’s and don’ts to be mindful of when buying land as part of an FHA mortgage. There are plenty of pro-consumer laws enacted to protect buyers who want to own land, but there are also some good, common sense things buyers can do to protect themselves regardless of those laws. Some buyers purchase land from out-of-state, which makes the first rule of buying property more challenging.

Even so, it’s never a good idea to purchase land without having inspected it first. Buyers should treat a land purchase the same as they would the home itself–who would buy a house without having a look at it first? The same principle should guide a land purchase.

The FHA recommends doing some homework on the developer of the land–what is the developer’s reputation in the local area? Can someone there recommend them? What does your lender or real estate agent say about them. Applying for an FHA mortgage loan means you’ll be meeting plenty of people who might know who is reputable and who isn’t. Ask for an opinion.

Never give in to high-pressure sales tactics, especially those conducted over the telephone. Always insist on reading all contracts

10 Responses to FHA Loans: Buying Land

  1. Craig Gackowski says:

    Hello,

    I am looking to purchase land for nursery operations. What means would I go about to apply for an FHA loan for this. Thanks.

    • Joe Wallace says:

      FHA home loans are for properties that are primarily residential in nature–only 25% of the total floor space of a property may be used for non-residential purposes. According to FHA rules, “Any nonresidential use of the property shall be subordinate to its residential use and character.”

  2. Kym Licup says:

    My husband & I are interested in buying land which will be residential. However, we will not be able to afford to build on it for the next 2-5 yrs (depending on finances).
    Does FHA have a time limit within which a residence must be built for a FHA land loan?

    thank you for any information!

    • Joe Wallace says:

      Best advice–contact the FHA directly at 1-800 CALL FHA to discuss your specific circumstances as there are many variables that can affect loan approval. For example, if the property is an investment property or a primary residence, etc.

  3. Aleesha says:

    Is the down payment the same for land as it is with purchasing a house using an FHA loan?

  4. Alicia says:

    Hi

    My husband and I will be building a home, we have land that we are interested in, what is the max for a construction loan and built that FHA gives?

    • FHA.com Staff Writer says:

      HUD 4000.1 states:

      “The 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. The documented Acquisition Cost of the Property includes:

      the builder’s price to build; Borrower-paid extras over and above the contract specifications and/or out-of- pocket expenses not included in the builder’s price to build; cost of the land if already owned, or with an acceptable gift documentation, the appraised value of the land may be used instead of the cost; and closing costs associated with any interim financing of the land.

      If the land is being purchased from the builder, the cost must be included in the builder’s price to build.
      If the Property being constructed is Manufactured Housing, the builder’s price to build shall include the sum of the cost of the unit(s) and all on-site installation costs.”

  5. Casey says:

    Hello. We are newlyweds. I have purchased two houses in my lifetime. One when I was 21 and one when I was 27. The first of those ended up going into foreclosure. After a tough run of losing jobs and losing the house, I ended up renting for a while. Now that we are married and expecting a baby, I am thinking about purchasing again. I had a lot of construction experience and the second house I purchased was an investment home built in 1911 that I refurbished. What I would like to do is purchase a lot and build a small dwelling about 600-900 sq ft. We would live in this until we could afford to build a larger home on the property and then utilize the first structure as a guest house. I am past the 3 years since the foreclosure and my credit score is a bit better despite still showing the foreclosure. It’s around 670. I know FHA wants a licensed contractor to do the work. But I’m trying to get creative because building the guest house myself would save me a ton of money. Are there any options at all for someone who wants an FHA loan to purchase a residential parcel of property, but wants to build themselves. Again, I am willing to get as creative as possible to do this. The only thing I have come up with is, get a land loan and pay interest only until I can complete the construction, but that’s a lot of payments going to nothing and I would have to do the building little
    By little. Time is of the essence due to the baby. I could really use 50k up front to pay for the construction. I appreciate any ideas you guys might have.

    • FHA.com Staff Writer says:

      FHA loans for the purchase of land and construction are available under the FHA mortgage loan program, but you will need to find a participating lender willing to do the construction loan. FHA loans are for primary residences only and carry an occupancy requirement, so you will need to discuss your circumstances with a loan officer to see what is possible based on your financial goals and your plans for the property.You can fill out an online form at FHA.com and be put in touch with a loan officer who will discuss your needs.(FHA.com is a private company, NOT a government agency.)

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