When applying for an FHA One Time Close construction loan to have a house built from the ground up, some borrowers want to know if the FHA construction loan program will permit the borrower to act as her own contractor.
FHA loan rules found in HUD 4000.1 would seem to make this question fairly easy to answer, but look beyond this quote from the FHA home loan rulebook-this isn’t the only rule that governs the FHA construction loan process:
“The Borrower must have contracted with a builder to construct the improvements. The builder must be a licensed general contractor. The Borrower may act as the general contractor, only if the Borrower is also a licensed general contractor.”
That is what is found in HUD 4000.1, page 445 under the FHA construction-to-permanent loan guidelines. For the purposes of this discussion, we can use the phrase “construction to permanent” (in the rule above) interchangeably with FHA One Time Close construction loans.
The FHA loan rules seem to permit borrowers to act as their own contractors. However, lender requirements also have a lot to say about whether this situation will be permitted.
Borrowers may find the lender unwilling, based on lender standards, to allow the work to be done by the same person borrowing the money.
In any case, whoever DOES wind up doing the work must be certified, licensed, bonded, etc. as required by the state and FHA home loan rules. And the work must be fully documented. From HUD 4000.1, the lender is required to obtain:
“Either, a fully executed contract agreement between the builder and the Borrower, which includes the contractor’s price to build; or documentation of the actual costs of construction where the Borrower is acting as the general contractor.”
One Time Close loans are an excellent way to have a home built for you from the ground up. You don’t have to purchase an existing construction property with an FHA mortgage loan-the construction loan is always an option you can look into. There are VA, FHA, and USDA construction loans.
We have done extensive research on FHA One-Time Close mortgages and spoke directly to the licensed lenders for most states. These are qualified mortgage loan officers who work for lenders that know the product well.
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Please note that the FHA One-Time Close Construction Program only allows for single family dwellings (1 unit) – and NOT for multifamily units (no duplexes, triplexes or fourplexes).
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 credit score and/or the Co-borrower’s credit score, if known. 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, the down payment is $0 up to the maximum VA lending limit for your county. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.