The Borrower must have contracted with a builder to construct the dwelling, and the builder must be a licensed general contractor. The Borrower may act as the general contractor if the Borrower is a licensed general contractor.
The maximum mortgage amount is calculated using the appropriate purchase loan-to-value (LTV) percentage of the lesser of the appraised value or the documented Acquisition cost.
The documented Acquisition cost of the property includes:
- Builder’s price or the sum of all subcontractor bids and materials;
- Borrower-paid options and construction costs not included in the builder’s price to build;
- Interest or other costs associated with a construction loan obtained by the Borrower to fund construction, if applicable; and either of the following:
- the lesser of the cost of the land, or appraised value of the land, if the land is owned six months or less at case number assignment; or
- the appraised value of the land if the land has been owned for greater than six months at case number assignment or was received as an acceptable gift.
The Borrower may utilize any cash investment in the Acquisition Cost of the Property or land equity to satisfy the Minimum Required Investment (MRI) in accordance with Calculating Maximum Mortgage Amount.
The Closing Disclosure or similar legal document may be prepared as a refinance transaction subject to the requirements of the Consumer Finance Protection Bureau (CFPB) regulations. The Mortgagee must document the Borrower’s cash investment was from an acceptable source of funds in accordance with TOTAL Mortgage Scorecard (TOTAL) or Manual Underwriting requirements, as applicable.
If the land was given as a gift to the Borrower, the Mortgagee must verify that the donor was not a prohibited source. The Mortgagee must obtain standard gift documentation with TOTAL or Manual Underwriting requirements for any gift of land. The Mortgagee must document the date of purchase of the land by obtaining the Closing Disclosure or similar legal document. The Mortgagee must obtain evidence that funds used to pay Borrower-paid options were derived from an acceptable source.
The Borrower may not receive cash back from the additional equity in the Property, but the Borrower may replenish their own cash expenditures for any Borrower-paid extras over and above the contract specifications and any out-of-pocket expenses not included in the builder’s price. The Mortgagee must obtain an itemization of the extras and expenses and the cost of each item.
The Mortgage must also comply with New Construction requirements.
For additional information, see:
Handbook 4000.1 Section II.A.8.k. at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh