Can I Buy Land With An FHA Loan?

Whether youre a first-time homebuyer, moving to a new home, or want to refinance your existing conventional or FHA mortgage, the FHA loan program will let you purchase a home with a low down payment and flexible guidelines.580 Credit Score- and only -3.5% Down RELATED ARTICLES

FHA loan limits were established to define how much you can borrow for a HUD-backed mortgage. Each state has different limits, so be sure to look up your state to understand what is available for your FHA home loan.

For , the FHA floor was set at $498,257 for single-family home loans. This minimum lending amount covers most U.S. counties. The FHA ceiling represents the maximum loan amount and is illustrated in the table below.

Also for 2024, the FHA ceiling was set at $1,149,825 for single-family home loans. This represents the highest amount that a borrower can get through the FHA loan program. It applies to high cost areas in the United States and is illustrated in the table below.

Paying the upfront costs of buying a new home can be challenging. To help overcome this hurdle, many local and state agencies offer down payment assistance in the form of grants or second mortgages.

Buying land to build a home can be an exciting prospect. Having a blank canvas to create your dream home is appealing to many buyers. However land purchases also come with challenges, especially when it comes to financing. Fortunately FHA loans offer a solution that makes buying land and building a new home more accessible.

What Is An FHA Loan?

FHA loans are government-backed mortgages insured by the Federal Housing Administration (FHA). These loans offer more flexible underwriting standards than conventional loans meaning borrowers with lower credit scores higher debt, and smaller down payments can still qualify.

The FHA insures lenders against losses, allowing them to offer mortgages to buyers who may not meet conventional loan requirements. As a result, FHA loans open homeownership opportunities to more Americans.

In 2022, the minimum FICO credit score for FHA loans is 500 with a 10% down payment and 580 with 3.5% down. The low down payment requirement makes these loans especially helpful for first-time home buyers.

Can FHA Loans Be Used To Purchase Land?

Yes, FHA loans can be used to purchase land through FHA’s One-Time Close Construction Loan program. This loan combines land purchase, construction financing, and the permanent mortgage into a single loan with just one closing.

With the One-Time Close loan, buyers can purchase a vacant lot and then build a new home on that land. The same FHA-backed loan will cover buying the land, paying construction costs and converting to a traditional 30-year fixed-rate mortgage once building is complete.

What Are The Benefits Of Using An FHA Loan To Buy Land?

There are several advantages to using an FHA loan for purchasing land and constructing a home:

Low Down Payment: FHA loans only require a 3.5% down payment. This low entry cost makes buying land and building more affordable.
Lower Credit Requirements: FHA loans are available to buyers with credit scores as low as 580, expanding options for those who may not qualify for other mortgages.
One Loan, One Closing: The FHA One-Time Close Construction Loan simplifies the process with a single loan for land, construction, and the permanent mortgage.
Fixed Interest Rates: FHA loans offer fixed rates, meaning the interest rate stays the same over the full loan term. This helps buyers lock in low rates even during construction.
Loan Size: FHA loans go up to $726,525 in most areas, providing ample buying power.
Streamlined Process: The FHA guides buyers through the construction process with required inspections and support.

Step-By-Step Process To Buy Land With An FHA Loan

If you want to buy land and build using an FHA loan, follow these steps:

1. Find the Right Land

Look for vacant land zoned for residential building that meets your space and budget needs. The land cannot have existing dwellings that must be demolished.

2. Get Pre-Approved

Work with an FHA-approved lender to get pre-approved for financing. This shows sellers you can afford the land purchase.

3. Make An Offer

Once you find the perfect lot, make an offer contingent on securing the FHA construction loan.

4. Finalize Blueprints

Finalize blueprints for the home you want to build to get an accurate estimate of construction costs.

5. Select A Contractor

Find a qualified general contractor who is approved to work with FHA loans. Get a detailed bid for the full build.

6. Complete Loan Application

Provide all required documentation to your lender, including land contracts, construction bids, blueprints, and permits.

7. Close On The Loan

At closing, you’ll finalize the land purchase and the construction loan. Now you can start building!

8. Make Draw Requests

As certain stages of construction are completed, your contractor submits draw requests to receive payouts from the loan funds.

9. Complete Construction

Once building is finished, the home must pass a final inspection. Then your loan converts to a traditional permanent mortgage.

What Are The Requirements To Qualify For An FHA Land Loan?

To qualify for an FHA One-Time Close Construction Loan, buyers must meet these requirements:

Credit Score: At least 580 FICO score, with a 10% down payment required below 580
Debt-to-Income Ratio: Total debt below 43% of gross monthly income
Cash Reserves: Most lenders require reserves equal to at least 6 months of mortgage payments
Steady Income: Two years of stable employment and income to verify you can make payments
Homebuyer Education: Completion of an FHA-approved homebuyer education course
Loan Limits: Loan amount cannot exceed FHA mortgage limits for your county

Meeting these requirements demonstrates you can manage the mortgage payments once construction is complete.

Finding The Best FHA Construction Loan Lender

The most important step is finding the right FHA-approved lender who offers One-Time Close Construction Loans. Ask family, friends, and your real estate agent for recommendations.

When researching lenders, compare:

Interest rates and fees
Construction loan experience
Steps in their process
How quickly they can close the loan

Get rate quotes from multiple lenders to make sure you get the best FHA construction loan for your needs.

Alternatives To FHA Land Loans

If you don’t qualify for an FHA loan, here are a few alternative options for financing land purchase and construction:

Conventional construction loans – Require higher credit scores and down payments but offer more flexible terms for the construction phase.
VA loans – Offer 100% financing if you are an eligible veteran or service member.
USDA loans – Provide 100% financing in designated rural areas for low-to-moderate income borrowers.
State/local construction loan programs – Some areas offer special loans, grants, or other incentives for purchasing land and building.
Owner financing – The land seller carries back financing at less stringent terms than a bank.
Personal loans – Can provide funds for a land down payment if you have strong credit but lack savings.
Crowdfunding – Crowdfunding platforms like Kickstarter or GoFundMe allow you to raise money from multiple contributors.

While FHA loans offer distinct advantages for buying land and constructing a home, make sure to research all programs that may suit your budget and goals. With the right financing strategy, you can make your dream home a reality.

can i buy land with an fha loan

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Single	Duplex	Tri-plex	Four-plex
FHA Limits (low cost areas)
$498,257	$637,950	$771,125	$958,350

Single	Duplex	Tri-plex	Four-plex
FHA Limits (high cost areas)
$1,149,825	$1,472,250	$1,779,525	$2,211,600

Paying the upfront costs of buying a new home can be challenging. To help overcome this hurdle, many local and state agencies offer down payment assistance in the form of grants or second mortgages.

Learn About FHA Loans

Find out why FHA mortgages with low down payments are so popular with homebuyers.

FHA Loan for Land

FAQ

What disqualifies you from an FHA loan?

You may not qualify for an FHA loan if your credit score or DTI doesn’t meet the lender’s requirements. It’s also possible to be disqualified if you’ve defaulted on federal debt, such as a tax bill or federal student loan. You’ll also have to show you have enough money to cover the down payment.

Can you use land as a down payment for a FHA loan?

The Land. If you already own a plot of land on which you intend to build a home, you are a step ahead in the process. Your land equity will cover the down payment requirement (3.5% minimum for FHA loans). You might need to purchase the lot; in which case it is important to think long term.

Can an FHA loan be used to build a house?

Yes, a new home can be purchased with an FHA loan. There are two programs available: You can either buy a home from a builder with a traditional FHA loan or you can use an FHA construction-to-permanent loan to finance the land, construction costs and the finished home.

Can you build a barndominium with an FHA loan?

Some of the more common loan types (FHA, VA) may not be available if you’re trying to build a Barndominium. The lack of comparable sales (for the appraisal process) in the market usually prohibits the use of these types of loans. Luckily, conventional construction loans are available, as are a couple of other options.

Can you buy land with an FHA loan?

There are important considerations to make in such cases. FHA mortgages allow qualified borrowers to use the loan to purchase land, but there are some things to know before you get started. The FHA Lenders Handbook, HUD 4000.1, states that an FHA loan can be used to buy land and purchase a home at the same time.

Can you buy a house with an FHA loan?

The FHA Lenders Handbook, HUD 4000.1, states that an FHA loan can be used to buy land and purchase a home at the same time. What you can’t do with an FHA loan in such cases? Buy a plot of undeveloped land with no immediate plans to build.

Can I build a home on land if I’m FHA approved?

Once you’re approved for a loan, you can use the proceeds to buy land. Most plots are acceptable, however, FHA construction loan rules don’t allow you to build a home on land if it’s near: 3. Choose a licensed contractor or builder FHA construction loan guidelines require you to work with a licensed contractor or builder.

Do you need a land loan to buy a house?

Land loans are used to buy property without a home on it, and may be harder to find than a traditional mortgage. Whether you’re planning to build your dream house or buy a new location for your business, you might need a land loan to make it happen. We’ll go over the basics of land loans, how they work and where to get them. What is a land loan?