II.A.8.k. Building on Own Land (09/14/15)

© HUD Single Family Housing Policy Handbook 4000.1

Included in this section are:

i. Definition
ii. Borrower Eligibility
iii. Maximum Mortgage Amount
iv. Minimum Required Investment
v. Borrower’s Additional Equity in the Property
vi. Required Documentation

i. Definition

Building on Own Land refers to a product of the 203(b) program used to finance the construction of a dwelling on land already owned by the Borrower for greater than 6 months from case number assignment.

ii. Borrower Eligibility

The Borrower must have contracted with a builder to construct the improvements. The builder must be a licensed general contractor. The Borrower may act as the general contractor, only if the Borrower is also a licensed general contractor.

iii. Maximum Mortgage Amount

The Mortgagee must use the lesser of the Property Value or the documented Acquisition Cost to determine the Adjusted Value.

The documented Acquisition Cost of the Property includes:

• builder’s price or the sum of all subcontractor bids and materials;
• value of the land as shown in the site value of the appraisal; and
• interest and other costs associated with a construction loan obtained by the Borrower to fund construction.

If the Property being constructed is Manufactured Housing, the builder’s price to build must include the sum of the cost of the unit(s) and all on-site installation costs.

iv. Minimum Required Investment

The Mortgage is calculated using the purchase Loan-to-Value (LTV) limits. The Closing Disclosure or similar legal document may be prepared as a refinance transaction. The Mortgagee must document any Borrower required funds to close are from an acceptable source of funds in accordance with 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 for any gift of land.

v. Borrower’s Additional Equity in the Property

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.

vi. Required Documentation

The Mortgagee must comply with general New Construction requirements.

The Mortgagee must document the date of purchase of the land by obtaining the Closing Disclosure or similar legal document.