Can an FHA Loan Close on a Newly Built Home?

The Quick Read: Yes, as long as the home meets FHA property standards and the builder paperwork and inspections are in the lender’s file. HUD treats a home that is proposed, under construction, or finished less than a year ago and never lived in as “New Construction,” and FHA insures mortgages on all three stages. A finished home that has been occupied is “Existing Construction” and follows a different path. Program figures below are subject to lender guidelines and full file review, and nothing here is a commitment to lend.

Most pages on this topic assume you are building from the ground up. This one answers the narrower question: what does it take to close on a home the builder has built, is building, or is about to start?

What Counts as a Newly Built Home to FHA?

FHA sorts homes by how far along they are and whether anyone has lived in them. Under the Handbook 4000.1 glossary, the categories look like this:

Two details trip people up. Digging footings does not count as permanent material, so a lot with only a cleared pad is still “proposed.” And a home finished eight months ago that a prior owner moved into is existing construction, not new. The one-year clock runs from the Certificate of Occupancy, and occupancy resets the category.

Why the Category Matters

The category decides which paperwork the file needs. New construction carries a builder document set that existing homes do not. A resale needs none of it.

If you are buying a spec home the builder finished last month, you are in the third row: new construction, but complete. The home exists, so the appraiser can see it. If you are signing a contract on a home that is framed but not finished, you are in the second row, and closing follows completion of the home.

What Has to Be in the File

The outcome comes down to the property standard, the builder documents, and the inspections.

1. Builder’s certification. Form HUD-92541, the Builder’s Certification of Plans, Specifications, & Site, must be fully executed before the appraiser appraises a proposed, under-construction, or under-one-year never-occupied home. The appraiser notes any gap between what the form says and what is on site.

2. Warranty of Completion. Form HUD-92544, the Warranty of Completion of Construction, is signed by both the builder and the buyer as a condition of FHA insurance.

3. Inspections or building-department evidence. The lender’s case binder needs proof the home was built to standard: the building permit and Certificate of Occupancy, or the required inspections, documented on a HUD compliance inspection report or an acceptable state form.

4. FHA Roster Appraiser. The appraisal comes from an appraiser on FHA’s roster, and the value they set is the value FHA uses.

The controlling source for all of it is HUD Handbook 4000.1. Lender checklists summarize it, and the details can shift by update, so the lender’s reading of the current Handbook governs your file.

Does the Builder Need a Ten-Year Warranty?

No longer. HUD removed the Insured Ten-Year Protection Plan requirement in a Final Rule published December 14, 2018, effective March 14, 2019, according to HUD Mortgagee Letter 2019-05. The rule deleted 24 CFR 203.200–203.209.

The same letter explains why this mattered. The old policy treated homes under construction, or under a year old, as ineligible for financing above 90% LTV unless they were pre-approved or covered by an HUD-accepted ten-year plan. That barrier is gone. What stayed is the HUD-92544 warranty of completion. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

Older lender pages and blog posts still describe the ten-year rule. If you see it, the page is out of date. Builders may still offer their own warranties, but FHA does not require one.

Who Pays What: Builder Credits and the 6% Cap

Builders count as “interested parties” under FHA rules. HUD’s FHA Q&A on interested-party contributions says interested parties may contribute toward the borrower’s closing costs, prepaids, loan-pricing costs and the upfront mortgage insurance premium, up to 6% of the sales price. Across the wholesale programs Lendmire places files with, the same 6% ceiling applies.

Three limits matter on a new-build file:

• Excess is an inducement. Anything over the 6% cap is treated as an inducement to purchase and lowers the property’s adjusted value dollar for dollar before LTV is applied. That can raise the cash you need at closing.
• Not for your minimum investment. Interested-party money cannot cover the borrower’s required minimum investment. On a purchase, that minimum is 3.5% at a 580 decision score or higher, against maximum financing of 96.5%.
• Lenders can’t pay it. HUD’s Mortgagee Letter 2024-06 says mortgagees and third-party originators may not make interested-party contributions.

Builders often advertise credits through a preferred lender. A credit is a credit; it still counts against the cap, and it does not change what the file must show.

FHA Terms That Apply to a New Build

New construction does not change the borrower-side terms. From the wholesale programs Lendmire works with:

• Leverage. Maximum financing is 96.5% with a 3.5% minimum investment from a 580 decision score. The programs Lendmire places FHA loans with start at 580. HUD has a 500–579 tier with a 10% minimum investment, but that is a HUD rule the network does not reach below 580.
• Occupancy. Owner-occupied principal residence only, one to four units. A non-occupant co-borrower is allowed.
• Mortgage insurance. An upfront premium of 1.75% of the base loan, financed, plus an annual premium between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. On a thirty-year loan above 90% LTV, the annual premium lasts for the term. At or below 90% LTV, it ends after eleven years.
• Ratios. The base pair is 31/43 (housing / total) with no compensating factors. Documented compensating factors reach 40/50 at the top tier, and the automated finding governs most files.
• Loan limits. County loan limits apply and change yearly. Check yours with a loan officer.

Occupancy decides it.

Edge Cases That Change the Answer

Built less than a year ago but already occupied. That home is existing construction. The new-construction document set does not apply, and the one-year age rule is not the test.

Construction-to-permanent (single close). This is one closing before construction begins, covering the construction loan and the permanent mortgage. Handbook 4000.1 requires a contract with a builder who is a licensed general contractor. You can act as your own general contractor only if you hold that license yourself. Confirm the current wording in the Handbook before relying on a summary.

Condominiums. For a condo project to count as existing construction, all phases must be 100% complete for over one year. Condo project approval is a separate process, and a new condo building can stall there even when your unit is finished.

Manufactured homes. HUD defines new construction for manufactured housing as a home permanently erected on a site for less than one year before the case number assignment date. Rules for inspections differ from site-built homes. Ask the lender what the current Handbook requires.

Flood zones. HUD announced a partial waiver for new construction in flood hazard areas, then restored the policy later in an update noted in the Handbook transmittal. The rules have been in flux. If the lot is in a flood zone, ask the lender where the current rules stand before you sign a purchase contract.

Refinancing a newly built home. Look at the FHA refinance paths instead: Streamline for an existing FHA loan, rate-and-term, or cash-out. The seasoning and occupancy rules in each decide timing. A loan officer can read your dates against them.

Where New-Build FHA Files Get Stuck

The friction points are paperwork, not credit.

• Incomplete HUD-92541 at appraisal. The appraiser needs it executed first. A missing or unsigned form holds the appraisal.
• Certificate of Occupancy delay. The CO or equivalent starts the one-year clock and supports the inspection record. A late CO holds closing.
• Mismatched plans and site. If the appraiser sees something on site that differs from the form, it becomes a discrepancy the file must resolve.
• Appraisal short of price. Builder pricing can run ahead of comparable sales. A low value means a renegotiation, more cash from you, or a reconsideration request with better comps.
• Credits over the cap. Concessions that look generous at contract can be cut back at underwriting and reduce the value used for LTV.
• Builder unfamiliar with FHA. Some builders do not do FHA files often. Ask early whether they will sign HUD-92544 and supply the required documents.

A construction phase can also push closing later than the contract date. Ask the lender how your lock and your Loan Estimate handle a delayed completion. Those mechanics are lender-specific.

A Scenario in Percentages

Take a buyer under contract on a finished spec home, never occupied, with the Certificate of Occupancy issued a few months earlier. That puts the home in the third stage. The buyer’s credit decision score is above 580. The builder offers credits equal to 5% of the price, which sits under the 6% cap and goes toward closing costs and prepaids.

The buyer puts down 3.5%, from their own funds, since builder money cannot cover it. Financing runs to 96.5% of the lesser of price or appraised value. If the builder had offered 8%, the extra 2% would count as an inducement and reduce the value used for LTV. The appraiser receives the executed HUD-92541 first, the case binder holds the signed HUD-92544 and the inspection evidence, and the deal works to review.

Whether the debt-to-income ratios clear depends on the file. The base pair is 31/43, with documented compensating factors reaching 40/50.

Key Terms Defined

Certificate of Occupancy (CO): The local approval that a home is complete enough to live in; it starts FHA’s one-year clock.

Existing Construction: A home 100% complete for over one year, or one finished less than a year ago that was previously occupied.

Interested party: Anyone with a stake in the sale, such as a builder or seller, whose contributions are capped at 6% of the price.

HUD-92541: The builder’s certification of plans, specifications and site, which the appraiser needs before appraising a new-construction home.

HUD-92544: The warranty of completion that builder and buyer sign as a condition of FHA insurance.

Inducement to purchase: Interested-party money above the cap, which lowers the value used to set LTV.

Next Steps

Lendmire arranges FHA loans through wholesale lenders in the 16 states where it is licensed for consumer lending. Review the FHA loan programs page for the basics, then ask your builder these four things before you sign: Will you sign HUD-92544? Who supplies HUD-92541 to the appraiser? What is the expected CO date? Are the credits within 6% of the price?

If you plan to use equity from a home you own to fund part of the purchase, Lendmire’s piece How to Close an FHA Cash-Out on a Home Held in a Living Trust covers the trust paperwork. If the price is far above typical, its article How Much Cash a Very High-Value Home Needs to Close on a Jumbo Loan explains when FHA stops being the right tool.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. HUD Handbook 4000.1 Glossary

2. Form HUD-92541, Builder’s Certification of Plans, Specifications, & Site

3. HUD Handbook 4000.1

4. HUD Mortgagee Letter 2019-05

5. HUD FHA Q&A: interested-party contributions

6. HUD Mortgagee Letter 2024-06