How to Get an FHA Loan Approved on New Construction

The Quick Read: Approval comes down to four things clearing together: you, the builder, the plans or finished home, and the closing paperwork. Across the wholesale programs Lendmire places FHA files with, financing reaches 96.5% with a 3.5% minimum investment at a 580 decision score or higher. The borrower side looks like any FHA file. The extra work on new builds is the property and builder documentation, and that is where most delays start.

What Counts as “New Construction” for FHA?

FHA treats three situations as new construction: a home not yet started, a home under construction, and a finished home less than a year old that has never been lived in. HUD’s Handbook 4000.1 drafting materials draw those lines. A home finished more than a year ago, or one that has been occupied, is handled as an existing home, and the new-construction paperwork drops away.

That matters because buyers often assume a house with a fresh certificate of occupancy is a “used” house. If it is under a year old and never occupied, it still gets the builder-side requirements.

Lendmire’s FHA loan programs work for owner-occupied one- to four-unit homes, including new builds. Buildings with five or more units fall under HUD’s multifamily programs instead.

Key Terms Defined

Proposed construction: a home where no concrete or permanent material has been placed yet.

Under construction: a home from the first permanent material until it is 100% finished, with no certificate of occupancy yet.

Builder’s certification (HUD-92541): the builder’s signed statement about the plans, specifications and site.

Warranty of Completion (HUD-92544): a form the builder and buyer both sign, certifying the home was built to HUD’s minimum standards.

Construction-to-permanent loan: one closing, before the build starts, that covers construction and then converts to the long-term mortgage.

The Four Gates to Approval

Think of approval as four gates. Each one asks a different party to prove something.

1. The borrower gate. Your credit, income, assets and debts are reviewed like any FHA file.

2. The builder gate. The builder supplies certifications and, for a to-be-built home, must be properly licensed.

3. The property gate. The appraisal and inspections show the home meets HUD’s minimum property standards and supports the price.

4. The closing gate. The final documents land in the file, and the required warranty is signed.

A weak spot at any gate can stall the whole file. Strength at three does not buy back a missing fourth.

Which Scenario Are You In?

Your path depends on what you are buying.

The first two rows are the most common. The third is a different loan structure, covered further down.

How the Loan Is Underwritten, Step by Step

Step 1: Contract and case number. You sign a purchase contract with the builder, and the lender orders the FHA appraisal.

Step 2: Builder’s certification. Older HUD guidance, in the HUD Archives reference guide, says the builder’s certification should be signed no more than 30 days before the appraisal is ordered. That guide is archived, so treat the timing as something your lender confirms against the current Handbook, which controls and may have changed.

Step 3: Appraisal. The appraiser reports value and notes any place the home falls short of HUD’s minimum property standards. The appraiser observes; the underwriter decides eligibility. Your appraised value also has to support the contract price, because the loan is sized on value and cost.

Step 4: Inspections. Under HUD Mortgagee Letter 2020-36, required inspections can come from the local building authority, an ICC-certified inspector, or, when neither is available, a registered architect or structural engineer who meets state licensing and bonding rules.

Step 5: Final documents. The case file typically holds the builder’s certification, the signed warranty, the permit and certificate of occupancy, and a termite report. Well or septic reports are added where they apply. Exact lists vary by lender and property, so ask for yours early.

Step 6: Completion items. If a small required item cannot be finished before closing, HUD’s commitment form allows a Mortgagee’s Assurance of Completion as the way to make sure it gets done.

Step 7: Your own underwriting. This runs alongside everything above. Property eligibility is a separate decision from borrower approval, and both must clear.

What the Borrower Side Looks Like

Across the wholesale programs Lendmire places FHA files with, the working envelope is consistent. Maximum financing is 96.5% with a 3.5% minimum investment, starting at a 580 decision score. HUD itself has a 500-579 tier that requires 10% down, but the network does not reach below 580. The home must be your principal residence, one to four units. A non-occupant co-borrower is allowed, and seller or other interested-party contributions can run to 6% of the price. Exact terms depend on lender and investor guidelines, credit profile, reserves, and property review.

Debt ratios start at 31/43 (housing to total income) with no compensating factors. Documented factors can push that to 40/50 at the top tier, and the automated underwriting finding governs most files. All of this is subject to lender guidelines and full file review, and none of it is a commitment to lend.

Mortgage insurance is part of every FHA loan. There is an upfront premium of 1.75% of the base loan, which is 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 the full term. At or below 90%, it ends after eleven years. County loan limits apply and change every year, so confirm yours before you shop. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

Rules That Changed (and Pages That Haven’t)

Plenty of web pages still describe an FHA 10-year warranty. It is gone. A final rule eliminated the insured ten-year protection plan, and HUD Mortgagee Letter 2019-05 explains that FHA kept the Warranty of Completion instead. A 2020 HUD mortgagee letter also eliminated the Early Start Letter and pre-approval requirements and made the Warranty of Completion a requirement on all new construction.

The warranty form is certified under penalty of perjury by the warrantor. Copies go to the buyer and builder at closing, and one goes in the case binder. Your protection is narrower than a ten-year structural plan was, so a thorough final walkthrough matters.

The Construction-to-Permanent Variation

If you are building on land you own, or buying the land at the same closing, the construction-to-permanent structure may fit. One closing happens before construction begins, and the loan converts to the long-term mortgage afterward. You qualify once, up front.

The rules are tighter on the builder. Under HUD Mortgagee Letter 2019-08, you must contract with a licensed general contractor. You can act as your own builder only if you are a licensed general contractor yourself. The maximum mortgage uses the lesser of appraised value or documented acquisition cost. Land equity can count toward your required investment, and the lender must document the source of funds for any borrower-paid options.

Where the General Rule Breaks

• A home just over a year old. Once a never-occupied home passes the one-year mark, it is treated as existing construction.
• Condos and manufactured homes. Both can qualify, but they carry their own project and foundation rules. For manufactured housing, a home sitting in a Special Flood Hazard Area is ineligible unless specific conditions are met, such as finished grade at or above the 100-year flood elevation.
• Builder-paid versus borrower-paid options. Upgrades you pay for need a documented source of funds on construction-to-permanent files.
• Other programs. USDA has its own warranty and inspection rules. Do not borrow from them when planning an FHA purchase.

Why Approvals Stall

Some of these fixes take real time. A late finish can push back a closing date, so build slack into your plans and your move-out date.

Disclosures on a New Build

New construction loans still follow the consumer disclosure rules. The CFPB’s TILA-RESPA FAQs allow revised disclosures when settlement is expected more than 60 days after the original Loan Estimate, provided the original states that possibility. You should receive your Closing Disclosure at least three days before closing and a copy of your appraisal.

What Your Decision Looks Like

The practical choice is usually between a builder with FHA experience and one without. Before you sign a contract, ask the builder whether they have delivered FHA-financed homes and can produce the certification and warranty forms. Ask your loan officer which documents they will want, in what order.

For a first-time buyer with a modest down payment and a production builder, the standard FHA purchase path is often the cleaner route. For someone with land and a custom plan, construction-to-permanent can make sense, though you take on more documentation and a stricter builder rule. Buyers with larger down payments or stronger credit sometimes find other loan types worth comparing. That comparison is worth running before you commit.

If you are buying a home and want to see whether an FHA loan fits your file, Lendmire can help you compare the options and what each one asks of the file.

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

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. HUD’s Handbook 4000.1 drafting materials

2. HUD Archives HOC Reference Guide 1-08c

3. HUD Mortgagee Letter 2020-36

4. HUD Mortgagee Letter 2019-05

5. HUD Mortgagee Letter 2019-08

6. CFPB TILA-RESPA Integrated Disclosure FAQs