December 2, 2021

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FHA Construction Loan Rule Changes In 2021

FHA Construction Loan Rule Changes In 2021

The FHA One-Time Close construction loan, also known as a construction-to-permanent mortgage or simply as a home construction loan, is an option for home buyers who want to build a home from the ground up.

There are USDA versions of this type of loan (with income caps and other need-based restrictions), there’s a VA One-Time Close loan for qualifying military personnel, and there is also the FHA One-Time Close construction loan which features a low 3.5% down payment the same as all other FHA purchase loan options.

The FHA and HUD have announced changes to the FHA One-Time Close program in 2021. These changes will formalize certain elements of the program, and change others as we’ll see below.

HUD has changed its maximum financing policy and other requirements for New Construction (in Handbook 4000.1. Those changes include:

Eliminating Early Start Letter and Pre-Approval requirements; Consolidation of requirements regardless of loan-to-value (LTV);
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 certified Residential Combination Inspector or Combination Inspector;
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 HUD-NPMA-99-A.

If you aren’t sure how these changes will affect your FHA construction loan, it’s best to ask the participating lender. The changes were published in October 2020 with the instruction to lenders that they may be used for existing mortgages with FHA case numbers, however, that is optional until January 4, 2021. After that date, the new rules MUST be used for all FHA One-Time Close construction loans.

What brought about these changes? The HUD official site issued a Mortgagee Letter announcing the alterations, stating there were a round of regulatory and policy changes in 2018 and 2019, “designed to streamline inspection and warranty requirements for FHA-insured mortgages, (and) require the U.S. Department of Housing and Urban Development (HUD) to update maximum financing policy for New Construction”.

The mortgagee letter states that FHA Inspector Roster requirements, previously codified at 24 CFR 200.170-172, were ended via an FHA Final Rule published on July 3, 2018; Insured Ten-Year Protection Plan requirements, (which the FHA and HUD state were “previously codified”) got eliminated by the Final Rule published on December 14, 2018.

The HUD official site notes that as “part of the December 14, 2018 Final Rule, 24 CFR 203.18(a)(3) was eliminated” resulting in an end to the FHA-mandadated limit to maximum financing of New Construction without Pre-approval.

Other alterations included allowing Mortgagees to issue “an Early Start Letter in jurisdictions that do not require building permits if a case number has been assigned.”

Talk to a participating One-Time Close lender to learn more about building your home instead of buying and what it takes to get started.

Want More Information About One-Time Close Loans?

One-Time Close Loans are available for FHA, VA and USDA Mortgages.  These loans also go by the following names: 1 X Close, Single-Close Loan or OTC Loan.

We have done extensive research on the FHA (Federal Housing Administration), the VA (Department of Veterans Affairs) and the USDA (United States Department of Agriculture) 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. provides information and connects consumers to qualified One-Time Close lenders in an effort 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, VA and USDA 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.

Your email to authorizes to share your personal information with a 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 VA will allow – there are no maximum loan amounts as per VA guidelines. Most lenders will go up to $750,000 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.
Joe Wallace - Staff Writer

By Joe Wallace

December 16, 2020

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for for (8) years and is currently the Associate Editor for

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About was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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