Can You Use an FHA Loan to Buy Land Only?

If your dream is to build your custom home from the ground up, you may be wondering if you can use an FHA loan to purchase the land only. The good news is – yes, you can! FHA loans allow you to buy land and construct a new home through their convenient One-Time Close construction program.

In this article we’ll cover everything you need to know about using FHA financing to purchase land for your future home building project. You’ll learn

• FHA loan eligibility to buy land only
• How the One-Time Close construction loan works
• Tips for choosing the right lot
• Steps to take after purchasing the land
• Advantages of FHA land loans

Let’s explore how you can turn your property dreams into reality with an FHA-backed land loan!

FHA Land Loan Eligibility

The Federal Housing Administration (FHA) mortgage insurance program facilitates the purchase of vacant land for future construction. To be eligible for an FHA loan to buy land only, you must meet these basic requirements

• FICO credit score – At least 580, though scores of 640+ are recommended
• Down payment – 3.5% of purchase price
• Debt-to-income ratio – Monthly debts under 43% of monthly income
• Bankruptcy – No bankruptcy in past 2 years
• Land restrictions – No existing structures that can’t be demolished

As long as you meet these criteria, you can use FHA financing to buy land prior to getting a construction loan

How the FHA One-Time Close Loan Works

FHA allows you to buy land and build through a convenient One-Time Close construction loan program. Here’s how it works:

• You get a single mortgage to cover land purchase and construction
• Only one closing is required to start the process
• Interest-only payments are made during construction phase
• Once home is built, the loan converts to a permanent traditional mortgage

This streamlined process makes it easy to purchase land and build your dream home!

Tips for Choosing the Right Lot

If you plan to obtain an FHA land loan, be thoughtful when selecting your lot. Here are some tips:

• Consult builders – They can assess lot suitability, constraints, and construction feasibility

• Research zoning – Verify what you can build and required setbacks

• Evaluate utilities – Ensure water, electric, sewer and other utilities are available

• Assess soil stability – Loose soils may require more foundation work

• Get surveys – Have the land surveyed to confirm exact boundaries

• Check flood zones – Avoid building in high risk flood zones to limit costs

Taking the time to properly assess potential lots will ensure your future home site is a good fit.

Next Steps After Purchasing Your Land

Once you’ve used your FHA loan to purchase land, you’ll need to take a few key steps to prepare for construction:

• Pay down the principal – Make extra payments to lower the loan amount for construction

• Get architectural plans – Have blueprints drawn up for your home design

• Choose a contractor – Research and hire a qualified home builder

• Get permits – File proper permits for construction and utilities

• Adjust land – Clear brush, level area, install utilities as needed

• Apply for construction financing – Talk to lenders about getting an FHA One-Time Close loan

Following these steps will help you transition smoothly from your land purchase to building your new home.

Benefits of Using an FHA Loan to Buy Land

There are many advantages to purchasing land with an FHA-insured mortgage:

• Low down payment – Only 3.5% down required

• Easy process – Wrap land buy and construction into one loan

• Cost savings – Lock in lower interest rates by combining phases

• More flexibility – Choose your own land and custom home design

• One closing – Streamlined process with less paperwork

• Builder options – Not restricted to certain builders like other loans

For land buyers with limited funds, FHA financing provides an affordable path to homeownership.

Turn Your Dreams Into Reality

If your goal is building a custom home on land you purchase, FHA loans can make it happen! By covering the land acquisition and construction costs in one convenient loan package, this program simplifies the process.

As long as you meet the eligibility criteria, you can use an FHA-insured mortgage to purchase land now and build your dream home later. Find out if you qualify and start exploring land options today! With thoughtful planning and strategic financing, you’ll be well on your way to creating your ideal living space.