Land Contracts & FHA Loans
August 20th, 2007
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Whenever real estate sales slow you begin again to hear about land contracts, in essence installment sales where the buyer does not get title until some or all payments have been made.
Interestingly enough, the FHA allows land contract buyers to refinance such loans — thus enabling them to get title at closing. Given that land contracts can fall through for any number of reasons, there is a lot of reason to refinance with an FHA loan.
The FHA, however, allows borrowers with land contracts to have their new loan treated either as new financing or as refinancing. For the pros and cons of each option ask loan officers for specifics.
Here’s what the FHA has to say about land contracts:
Paying Off Land Contracts.
If the borrower will use the loan to complete payment on a land contract, contract for deed, or other similar type financing arrangement in which the borrower does not have title to the property, the new mortgage may be processed as either a purchase or a refinance transaction with maximum FHA-insured financing if the borrower receives no cash at closing. If all loan proceeds are used to pay the outstanding balance on the land contract and eligible repairs, renovations, etc., the appropriate LTV ratio is applied to the lesser of:
1. The appraised value; or
2. The total cost to acquire the property (the original purchase price, plus any documented costs the purchaser incurs for rehabilitation, repairs, renovation, or weatherization), plus allowable closing costs and, if treated as a refinance, reasonable discount points.
Equity in the property (original sales price minus the amount owed) may be used for the borrower’s entire cash investment. However, if the borrower receives more than $250 cash at closing, the loan is limited to 85 percent of the sum of the appraised value and allowable closing costs. Replenishment of the borrower’s own cash expended for repairs, improvements, renovation, etc., is not considered as “cash back,” provided the borrower can substantiate with canceled checks and paid receipts all out-of-pocket funds spent for those purposes.
If you have a land contract, or if you are considering one, please see an attorney or legal clinic for appropriate advice before signing any paperwork. Such agreements are complex, governed by state rules and can be one-sided if not reviewed with care.
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September 21st, 2007 at 5:43 pm
Question: Will FHA loan on Log Homes
September 22nd, 2007 at 3:35 am
HUD says that it has issued for system or product acceptances for “Structural Engineering Bulletins (SEBs) which are issued by HUD for structural systems, such as modular housing, log homes or panelized construction, and for subsystems such as roof or wall systems.”
It also says such acceptances lapse after three years. If you want to finance a log home, check FIRST with multiple lenders before buying land or beginning your project to assure that FHA financing is available for the specific construction you expect to undertake.
April 12th, 2008 at 6:35 am
Question: Will FHA loan to first time buyers for land over 10 acres?
Was told by a mortgage lender that I will not, and just wanted to look into the whys and nots.
Also if not what way should we approach found land of our dreams but FHA will fund it?
June 10th, 2008 at 1:35 pm
Hi,
Is there a FHA loan package program that will assist me in buying a land in rural area from a private owner and puchasing a manufactured home fron a dealer and setting on a permanent foundation build by a contractor or myself?
Thanks.
Regards,
Tran
July 17th, 2008 at 2:50 pm
When is a modular home considered in the same category as a regular home when it has stone block foundation and the electric meter is attached to the home and the roof has a 4ft. pitch with a12 inch eave and a composition shingle roof?
January 2nd, 2009 at 3:04 pm
Does anyone know if you can use an FHA loan to finance purchasing land? I can’t seem to find anything specific about it.