II.A.8.i. New Construction (09/14/15)

© HUD Single Family Housing Policy Handbook 4000.1

Included in this section are:

i. Definitions
ii. Inspections or Warranties for Maximum Financing
iii. Required Documentation for Maximum Financing
iv. Financing LTV Limit
v. Documents to be Provided to Appraiser at Assignment
vi. Property Considerations
vii. Mortgagee Review of Appraisal
viii. Completion of Construction

i. Definitions

New Construction refers to Proposed Construction, Properties Under Construction, and Properties Existing Less than One Year as defined below:

• Proposed Construction refers to a Property where no concrete or permanent material has been placed. Digging of footing is not considered permanent.
• Under Construction refers to the period from the first placement of permanent material to 100 percent completion with no Certificate of Occupancy (CO) or equivalent.
• Existing Less than One Year refers to a Property that is 100 percent complete and has been completed less than one year from the date of the issuance of the CO or equivalent. The Property must have never been occupied.

FHA treats the sale of an occupied Property that has been completed less than one year from the issuance of the CO or equivalent as an existing Property.

Pre-Approval refers to Properties that are less than one year old and meet one of the following requirements:

• the Property was appraised and the Mortgagee issued form HUD-92800.5B, Conditional Commitment Direct Endorsement Statement of Appraised Value, before construction started;
• a building permit or its equivalent has been issued by a local jurisdiction (not applicable to Manufactured Housing); or
• the Mortgagee issued an Early Start Letter.

Early Start Letter refers to the document issued by the Mortgagee in response to a builder’s request to start construction before the appraisal is completed. The Early Start Letter indicates the Mortgagee’s approval of the Property before issuance of form HUD 92800.5B and without affecting the maximum mortgage amount. The Mortgagee can issue the Early Start Letter if local jurisdiction has issued a building permit and a case number has been assigned.

Ten-year warranty refers to an agreement between the Borrower and a plan issuer which contains warranties regarding the construction and structural integrity of the Borrower’s dwelling securing the FHA-insured Mortgage. The plan must be a HUD-accepted insured ten-year protection plan.

ii. Inspections or Warranties for Maximum Financing

(A) Site Built Housing and Condominiums (By Construction Status at Time of Appraisal)

(1) Proposed ConstructionThe Mortgagee must obtain one of the following:

• copies of the building permit and CO (or equivalent);
• three inspections (footing, framing and final) performed by an FHA Roster Inspector on form HUD-92051, Compliance Inspection Report (for Modular Housing, footing and final only);
• three inspections (footing, framing and final) performed by the local authority with jurisdiction over the Property (for Modular Housing, footing and final only); or
• a 10-year warranty and final inspection issued by the local authority with jurisdiction over the Property or an FHA Roster Inspector.

(2) Under-ConstructionThe Mortgagee must obtain:

• copies of the building permit and CO (or equivalent); or
• a 10-year warranty and final inspection issued by the local authority with jurisdiction over the Property or an FHA Roster Inspector.

(3) Existing for Less than One Year (100 Percent Complete)The Mortgagee must obtain:

• copies of the building permit and CO (or equivalent); or
• a 10-year warranty and final inspection issued by the local authority with jurisdiction over the Property or an FHA Roster Inspector; or
• an appraisal evidencing Property is 100 percent complete.

(B) Manufactured Housing (By Construction Status at Time of Appraisal) Inspection Requirements for Maximum Financing

(1) Proposed ConstructionThe Mortgagee must obtain:

• two inspections (initial and final) performed by an FHA Roster Inspector; or
• two Inspections (initial and final) performed by the certifying engineer or architect; or
• a 10-year warranty and final inspection issued by an FHA Roster Inspector or certifying engineer or architect.

(2) Under ConstructionThe Mortgagee must obtain a 10-year warranty and final inspection issued by the FHA Roster Inspector or certifying engineer or architect.

(3) Existing for Less than One Year (100 Percent Complete)The Mortgagee must obtain a 10-year warranty and final inspection issued by the FHA Roster Inspector or certifying engineer or architect.HUD will only accept inspections by a local building authority on Manufactured Housing Properties if there are no FHA Roster Inspectors available to perform these inspections. The Mortgagee must document efforts to obtain an FHA Roster Inspector.

iii. Required Documentation for Maximum Financing

The Mortgagee must obtain and include the following documents in the case binder:

• form HUD-92541, Builder’s Certification of Plans, Specifications, and Site;
• form HUD-92544, Warranty of Completion of Construction;
• evidence that the Property was pre-approved or the 10-year warranty plan:
  • Evidence of pre-approval is the Early Start Letter or copy of building permit issued by local authority prior to start of construction.
  • For a 10-year warranty plan, evidence of acceptance or enrollment in the plan is required; the application alone is not acceptable.
• required inspections;
• Wood Infestation Report, unless the Property is located in an area of no to slight infestation as indicated on HUD’s “Termite Treatment Exception Areas” list:
  • Form HUD-NPMA-99-A, Subterranean Termite Protection Builder’s Guarantee,is required for all New Construction. If the building is constructed with steel, masonry or concrete building components with only minor interior wood trim and roof sheathing, no treatment is needed. The Mortgagee must ensure that the builder notes on the form that the construction is masonry, steel, or concrete.
  • Form HUD-NPMA-99-B, New Construction Subterranean Termite Service Record,is required when the proposed Property is treated with a soil chemical termiticide. The Mortgagee must reject the use of post construction soil treatment when the termiticide is applied only around the perimeter of the foundation.
• local Health Authority well water analysis and/or septic report, where required by the local jurisdictional authority.

iv. Financing LTV Limit

Properties that are Under Construction or Existing for Less than One Year are limited to a 90 percent LTV unless they meet the Pre-Approval requirements or are covered with a HUD-accepted insured ten-year protection plan, and they meet the Required Documentation for Maximum Financing.

For a Mortgage with an LTV of 90 percent or less, the Mortgagee must obtain:

• form HUD-92541, Builder’s Certification of Plans, Specifications, and Site;
• final inspection or appraisal, if the Property is 100 percent complete;
• Wood Infestation Report, unless the Property is located in an area of no to slight infestation as indicated on HUD’s “Termite Treatment Exception Areas” list:
  • Form HUD-NPMA-99-A, Subterranean Termite Protection Builder’s Guarantee,is required for all New Construction. If the building is constructed with steel, masonry or concrete building components with only minor interior wood trim and roof sheathing, no treatment is needed. The Mortgagee must ensure that the builder notes on the form that the construction is masonry, steel, or concrete.
  • Form HUD-NPMA-99-B, New Construction Subterranean Termite Service Record,is required when the proposed Property is treated with a soil chemical termiticide. The Mortgagee must reject the use of post construction soil treatment when the termiticide is applied only around the perimeter of the foundation.
• local Health Authority well water analysis and/or septic report, where required by the local jurisdictional authority.

v. Documents to be Provided to Appraiser at Assignment

The Mortgagee must provide the Appraiser with a fully executed form HUD-92541, signed and dated no more than 30 Days prior to the date the appraisal was ordered.

For Properties 90 percent completed or less, the Mortgagee must provide a copy of the floor plan, plot plan, and any other exhibits necessary to allow the Appraiser to determine the size and level of finish of the house they are appraising.

For Properties greater than 90 percent but less than 100 percent completed, the Mortgagee must provide the Appraiser with a list of components to be installed or completed after the date of inspection.

vi. Property Considerations

New Construction must meet HUD Minimum Property Requirements (MPR) and Minimum Property Standards (MPS).

vii. Mortgagee Review of Appraisal

(A) Site Considerations

(1) EnvironmentalThe Mortgagee must require corrective work to mitigate any condition that arises during construction that may affect the health and safety of the occupants, the Property’s ability to serve as collateral, or the structural soundness of the improvements.

(2) Operating Oil or Gas WellsIf a proposed or newly constructed dwelling is located within 75 feet of an operating oil or gas well, the Mortgagee must reject the Property unless mitigation measures are completed.

(3) Slush PitsIf a Property is Proposed Construction near an active or abandoned Slush Pit, the Appraiser must require a survey to locate the pit. The Mortgagee is to assess any impact on the subject Property.

(4) Special Airport HazardsIf a proposed or newly constructed Property is located within Runway Clear Zones (also known as Runway Protection Zones) at civil airports or within Clear Zones at military airfields, the Mortgagee must reject the Property for insurance.A proposed or newly constructed Property located in Accident Potential Zone I at military airfields may be eligible for FHA mortgage insurance provided that the Mortgagee determines that the Property complies with Department of Defense guidelines.

(5) Flood Hazard AreasIf any portion of the property improvements (the dwelling and related Structures/equipment essential to the value of the Property and subject to flood damage) is located within a Special Flood Hazard Area (SFHA), the Mortgagee must reject the Property, unless:

• a final Letter of Map Amendment (LOMA) or final Letter of Map Revision (LOMR) that removes the Property from the SFHA is obtained from the Federal Emergency Management Agency (FEMA); or
• the Mortgagee obtains a FEMA National Flood Insurance Program (NFIP) Elevation Certificate (FEMA Form 81-31), that documents that the lowest floor (including the basement) of the residential building and all related improvements/equipment essential to the value of the Property, is built at or above the 100-year flood elevation in compliance with the NFIP criteria. The Mortgagee must ensure that the flood elevation certificate is prepared by a licensed engineer or surveyor and completed based on finished construction.

The Mortgagee must include the LOMA, LOMR, or flood elevation certificate with the case when it is submitted for endorsement.

The Mortgagee must ensure that insurance under the NFIP is obtained when a flood elevation certificate documents that the Property remains located within an SFHA.

(6) Individual Water Supply Systems (Wells)The Mortgagee must ensure that new wells are drilled and are no less than 20 feet deep and cased. Casing should be steel or other casing material that is durable, leak-proof, and acceptable to either the local health authority or the trade or profession licensed to drill and repair wells in the local jurisdiction.A well located within the foundation walls of New Construction is not acceptable except in arctic or sub-arctic regions.The following tables provide the minimum distance required between wells and sources of pollution:

The following provides the minimum standards for Individual Water Supply Systems (wells):

(7) Shared WellA Shared Well is permitted only if the Mortgagee obtains evidence that:

• it is not feasible to serve the housing by an acceptable public or Community Water System; and
• the housing is located in an area other than in an area where local officials have certified that installation of public or adequate Community Water Systems and sewer systems are economically feasible.

(B) Sales Comparison Approach: Comparable SelectionFor Properties in new subdivisions, the selected comparable sales must include at least one sale outside the subdivision or project and at least one sale from within the subdivision or project.

viii. Completion of Construction

Regardless of the inspection process used, the Mortgagee must certify on form HUD-92900-A, HUD/VA Addendum to Uniform Residential Loan Application, that the Property is 100 percent complete and meets HUD’s MPR and MPS.