Can You Get an FHA Loan for a Land Purchase?

FHA loans are government-insured mortgage options designed to make homeownership more accessible for eligible borrowers. These programs aim to reduce financial barriers by providing favorable terms. FHA loans are specifically tailored to support the purchase or construction of a primary residence. Many prospective homeowners often inquire about FHA financing for land acquisition.

FHA Loan Use for Land Only

FHA loans are generally not eligible for the purchase of undeveloped or bare land alone. The fundamental reason behind this policy is that FHA financing is intended for properties that serve as a borrower’s primary residence. A vacant plot of land, without an existing or planned structure, does not fulfill this core requirement. The FHA program’s regulations mandate that the financed property must include a dwelling that is either already constructed or will be built as part of the loan agreement.

FHA Construction to Permanent Loans

While FHA loans do not finance bare land, they can be utilized for land acquisition when it is part of a new home construction project through an FHA construction-to-permanent loan. This loan type, sometimes referred to as a “one-time close” loan, combines financing for the land purchase and construction costs into a single mortgage. This loan structure is designed to simplify the home-building process by providing a unified funding mechanism. Upon completion, the construction loan automatically converts into a permanent mortgage, eliminating the need for a separate closing and additional fees.

Key Requirements for FHA Construction Loans

FHA construction-to-permanent loans involve requirements for borrowers, the property, and the builder. Borrowers must meet standard FHA eligibility criteria, including credit scores ranging from 580 for maximum financing to 500 with a higher down payment. Debt-to-income ratios are also assessed to ensure repayment capacity, not exceeding 43% for housing expenses and 50% for total debt. The property must be the borrower’s primary residence and meet FHA minimum property standards upon completion.

The land must be suitable for building, with access to utilities such as water, sewer, or septic systems, and electricity. Inspections are conducted during construction to ensure adherence to approved plans and FHA standards. The builder must be FHA-approved, demonstrating financial stability and experience. A detailed construction contract and building plans must be submitted and approved.

Loan funds are disbursed through “draws” as construction progresses, with inspections verifying completed work before each release. Borrowers are required to make a minimum down payment of 3.5% of the total appraised value, including both the land and construction costs.