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"Can I Buy Land And Build A House With An FHA Loan?"

Find out how you can use an FHA Construction Loan to buy land and build a custom home.
Feb 09, 2022

If you want to build your dream home but you're having a hard time meeting the requirements of a conventional loan, we've got good news for you. An FHA Construction loan provides you with more flexible lending requirements, giving moderate-income families the opportunity at custom-homeownership.

Let's find out how an FHA Construction loan can help you buy land and build your house the way you envision it.

What is an FHA Construction Loan?

Also known as a "3 in 1 mortgage," an FHA Construction-to-Permanent loan finances the whole home construction process with one loan product. It covers all expenses concerning home construction and provides the permanent mortgage for the newly built home. 

Can You Use A Construction Loan To Purchase Land?

An FHA Construction loan takes care of all the costs involved with construction, including the land, permits, plans, fees, labor, and materials. This is excellent news for FHA borrowers who may not have extra funds to buy land or apply for a second loan.

Once the home is complete, the construction loan will roll into a traditional mortgage.

Steps Involved in Your FHA Construction Loan

Look for the land you'll build on.

When looking for the land purchase, make sure that it doesn't require a teardown or building of multiple properties. It should be vacant land, essentially ready to build a home from the ground up.

Get pre-qualified for a loan.

Before starting building, you need to get pre-qualified for your construction loan to know your borrowing limits. This will help you create a budget for the entire project. 

Pick a builder.

The builder you select must be willing to work with the FHA Construction Loan program. Aim to work with a builder who already has experience with FHA construction loans as well as one that has an excellent track record. 

Complete the loan process and start building.

Once you've chosen your land and builder, you can now close your loan application so that construction can begin.

FHA Construction Loan Borrower Eligibility

  • Have at least a 3.5% down payment, which is the minimum for FHA financing
  • No bankruptcy in the past 2 years
  • A DTI below 43%
  • A credit score of 640 or higher for an FHA Construction Loan
  • Verification of 2 years of employment and income

Ready to build your dream home?

An FHA Construction Loan makes financing your custom home more accessible. To get started, all you need to do is find a licensed builder in your area and work with us for all your FHA financing needs. Ask one of our trusted mortgage advisors for more details.

✅ Benefits of Contract Loan Processing for VA Loans

  1. Specialized VA Knowledge

    • VA loans have unique requirements (COE, residual income, funding fee calculations, appraisal requirements).

    • A contract processor experienced in VA loans can spot potential issues early and streamline the process.

  2. Cost Savings for Lenders

    • No need to hire full-time staff; processors are paid per file.

    • Helps smaller brokerages or lenders manage fluctuating loan volumes without carrying extra payroll.

  3. Faster Turn Times

    • Contract processors often work remotely and are paid per closed file, so they’re incentivized to move loans quickly.

    • They can push COE requests, follow up on VA appraisals, and ensure VA-specific forms (26-1880, 26-8923) are completed on time.

  4. Compliance & Accuracy

    • VA has strict guidelines (e.g., allowable fees, seller concessions, and veteran protections).

    • A skilled processor reduces risk of compliance errors that could lead to loan buybacks or funding delays.

  5. Scalability

    • During high volume seasons (e.g., rate drops, PCS military moves), lenders can bring on extra processors quickly without long-term HR commitments.

  6. Reduced Loan Officer Burden

    • Lets LOs focus on originating, networking, and serving clients while the processor handles gathering DD-214s, income docs, pest inspection reports (if required), and underwriting conditions.

  7. Improved Borrower Experience

    • Veterans and active-duty borrowers often value clear communication and speed.

    • A processor who knows the VA process can anticipate documentation needs and prevent last-minute surprises.

👉 In short: Contract processors help lenders stay lean, compliant, and efficient, while ensuring veterans have a smoother experience.