Land Contracts & FHA Loans

by Peter G. Miller
August 20th, 2007

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.

  •  | 
  •  | 
  •  | 


This entry was posted on Monday, August 20th, 2007 at 4:26 pm and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

10 Responses to “Land Contracts & FHA Loans”

  1. Terry Minard Says:

    Question: Will FHA loan on Log Homes

  2. Peter G. Miller Says:

    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.

  3. B. Willoughby Says:

    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?

  4. Tran Says:


    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?


  5. lynn waller Says:

    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?

  6. Connie Says:

    Does anyone know if you can use an FHA loan to finance purchasing land? I can’t seem to find anything specific about it.

  7. Belinda Frank Says:

    I have a land contract that was signed and filed in 2/09. FHA says this can treat this as a refinance or purchase. Lenders are telling me that I have to wait the full 12 months before I can do snything. Wouldn’t it be the same as a person wanting to buy the house they live in. Please advise.

  8. Ginger Says:

    Can you tell me if FHA is STILL refinancing land contracts in 2010?

  9. Brenda Says:

    I bought a house in 2007 on a land contract. I now need to refinance or secure a first time loan for the balance. I qualify for an FHA loan, but the value of house has decreased over the last 3 years due to the recession. The houses within 2 blocks of my neighborhood have dropped about $20,000.
    I s there any program or funding that might help me bridge the gap between what I contracted to pay for the house and what it will appraise for now?

  10. JR Says:


    My question today is about Home & Land real estate deals. For eight years I have been paying into a 3 bed 2 bath mobile home land and home package here in Georgia. I wanted to know if there is any way to use these types of home buying arrangements (in my case I have paid $554.00 a month for just about 8 years now= about 53,000.00) in order to help improve your credit score. I have in the past tried to apply for refinancing but most will turn you down because either they don’t service land home deals or these types of arrangements don’t have any equity buildup. Are you familiar with land and home package deals and is there anyone you might know of who can answer my questions?


Leave a Reply

Are you a Mortgage Lender specializing in FHA Loans? Join our mortgage directory today! Homeowners click here to appy for FHA Loans