Can You Get an FHA Loan for Land? What Buyers Need to Know

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 vacant land to build your dream home can be an exciting prospect. But financing raw land takes some extra legwork compared to getting a traditional mortgage. FHA loans are a popular option for homebuyers, but can you use them to purchase land?

The short answer is yes – with some key caveats. The Federal Housing Administration (FHA) offers a couple loan programs that allow you to buy land. However, unlike a standard FHA mortgage, you can’t just purchase land and leave it vacant indefinitely.

To qualify for FHA land financing, you’ll need to commit to building a home on the property in the near future. Alternatively, you can use FHA financing if the land already has an existing home on it that you plan to live in as your primary residence.

FHA Land Loan Programs

The FHA is a government agency that insures mortgages made by private lenders This helps make home loans more accessible and affordable FHA programs require lower down payments and credit scores compared to conventional mortgages.

There are two main FHA loan programs you can use to buy land:

FHA Construction Loan

This loan lets you buy vacant land or a teardown property and finance building a new home on it. The FHA construction loan program offers a few perks:

One loan, one closing: Instead of needing separate financing for the land and then construction, this loan handles everything in one go. Once building is done, it converts to a permanent FHA mortgage.
Lower down payment You only need 3.5% down to buy the land and finance construction With conventional construction loans, you’ll often need 10-20% down
More flexibility FHA construction loans have more lenient credit score requirements starting around 500 Many conventional construction loans want 700+ scores,

However, you can’t use FHA construction financing to just buy and hold vacant land. You’ll need to have plans to build within 6-12 months.

FHA Land Loan with Existing Home

If the land already has a home on it, you may qualify for a standard FHA mortgage to purchase it. This can be a more direct route than the construction loan program.

You’ll need to move into the home as your primary residence within 60 days of closing. FHA owner-occupancy rules don’t allow you to buy land with a home as a vacation property or rental.

FHA Land Loan Requirements

To get approved for FHA land financing, you’ll need to meet certain eligibility standards:

Credit score: At least 500 for the construction loan program or 580 for an existing home. The higher your score, the better your chances.
Down payment: 3.5% of the purchase price. Can come from your own funds or gifts.
Debt-to-income ratio: Generally 43% or lower.
Employment history: 2 years of stable income for the field you work in.

Specific requirements may vary slightly by lender. The property itself will also need to meet FHA lending guidelines.

How to Get an FHA Land Loan

Follow these steps when seeking FHA financing to buy land:

1. Find the right property

Search for land to buy that aligns with your goals. Being further along in the development process can make financing easier.

2. Get pre-approved

Work with an FHA lender to get a pre-approval letter for the loan amount you need. This shows sellers you’re a serious buyer.

3. Make an offer and negotiate contract

Make an offer on the land and negotiate a purchase agreement with the seller.

4. Finalize land loan details

Provide all required documentation to your lender to underwrite and finalize the FHA land loan.

5. Close on property

At closing, you’ll sign final papers and the deed will be transferred to you!

If using the construction loan, you’ll also need to finalize builder contracts and house plans before you can break ground.

Pros and Cons of an FHA Land Loan

Pros

Low down payment options
More flexible credit requirements
One loan/closing for construction
Lower mortgage insurance

Cons

Must build within 12 months
Limited to primary residence
Prone to delays if not ready to build
Can’t buy land as investment

FHA land loans open doors, but aren’t the right fit for everyone. Make sure you understand requirements before committing to the process.

Alternatives to FHA Land Loans

If you don’t qualify for an FHA land loan or want other options, here are some alternatives:

USDA loans – For rural properties
VA loans – For veterans and service members
Conventional land loans – Higher credit/down payment requirements
Owner financing – Pay seller over time instead of bank
401(k) or IRA funds – For investment properties
Home equity loan – If you have existing home equity
Hard money loans – From private investors, higher rates

Shop around to find the best land financing for your situation. And be sure to work with an experienced real estate agent and lender familiar with land loans in your area.

The Bottom Line

Yes, FHA loans can be used to buy vacant land in some cases. But you’ll need to follow program rules, like committing to build a home within 12 months. An FHA construction loan streamlines the process into a single loan. Or you can use FHA financing to buy land that already has a home on it that you’ll live in.

FHA land loans make buying property more affordable. But be sure you understand requirements before pursuing this option to finance raw land.

FHA Loan Programs for 2024

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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.

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 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.

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 you build a house with an FHA loan?

With an FHA construction loan, you have the flexibility to buy a parcel of land, build a home from scratch, finance a permanent mortgage on the completed home, or even purchase and renovate a fixer-upper, all with a single loan.