FHA Single Family Housing Policy Handbook 4000.1, Part II — k. Building on Own Land (06/17/2019)

FHA Single Family Housing Policy Handbook 4000.1, Part II — k. Building on Own Land (06/17/2019)

k. Building on Own Land (06/17/2019) i. Definition 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. ii. Eligibility The Borrower must have contracted with a builder to construct the dwelling. 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. iii. Calculating Maximum Mortgage Amount The Mortgagee must use the lesser of the appraised value or the documented Acquisition Cost to determine the Adjusted Value. 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 or the sum 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; and • either of the following: o 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 o the 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. For Manufactured Housing, the builder’s price to build includes the sum of the cost of the unit(s), the cost to transport the unit from the dealer’s lot to the installation site, and all on-site installation costs. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 8. Programs and Products - Building on Own Land (06/17/2019) Handbook 4000.1 483 Last Revised: 11/26/2025 iv. Minimum Required Investment (A) Standard The Borrower may utilize any cash investment in the Acquisition Cost of the Property or land equity to satisfy the MRI in accordance with Calculating Maximum Mortgage Amount. (B) Required Documentation The Mortgagee must document that the cash investment was from an acceptable source of funds in accordance with TOTAL or manual underwriting requirements as applicable. If the land was given as a Gift to the Borrower, the Mortgagee must verify that the donor was not a prohibited source. The Mortgagee must obtain standard gift documentation with TOTAL or manual underwriting requirements for any Gift of land. v. Borrower’s Additional Equity in the Property The Borrower may not receive cash back from the additional equity in the Property, but the Borrower may replenish their own cash expenditures for any Borrower-paid extras over and above the contract specifications and any out-of-pocket expenses not included in the builder’s price. The Mortgagee must obtain an itemization of the extras and expenses and the cost of each item. vi. Required Documentation The Mortgagee must document the date of purchase of the land by obtaining the Closing Disclosure or similar legal document. The Mortgagee must obtain evidence that the funds used to pay Borrower-paid options were derived from an acceptable source. The Mortgagee must obtain an itemization of the options, expenses, and cost of each item. The Mortgagee must comply with New Construction requirements. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages

Source: FHA Single Family Housing Policy Handbook 4000.1, Part II — k. Building on Own Land (06/17/2019) · source URL · snapshot 8c03836f77f317e1