FHA & Newly Constructed Properties

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

I’ve been seeing a LOT of approvals coming back recently with long lists of conditions related to new construction documentation so I figured this would be a good topic to cover more thoroughly this week.

As an originator or processor, it’s important to be aware UP FRONT of the age of the subject property. Any time the subject property is under one year old and has never been occupied, it is considered new construction for processing purposes and is subject to additional documentation and disclosure requirements. These are requirements that you want to get started with at day ONE; not on day 15 or day 20 when underwriting turn times are in excess of 10 days with some FHA lending sources. If you forget to verify the age of the property, don’t pay attention to the property age on the appraisal and completely miss that the property is new construction, you can bet you will be met with an unhappy underwriter, a long list of confusing conditions, an angry builder, an angry realtor, some very unhappy borrowers and a loan officer who wants to point fingers in your direction to save his or her behind.

Here is what I suggest when it comes to these situations:

ALWAYS verify the age of the property the day you receive the incoming file for processing. If you cannot tell if the property is new construction by the seller being a builder in many cases, you need to stop, go back to the loan officer and ask if the property is over a year old. If the loan officer doesn’t know and doesn’t offer to call the agent himself or herself, pick up the phone and make the call. The only way to be certain in some cases is to simply ask the question.

If you’re able to establish that the property is over a year old or that it has been previously occupied, there is no reason for additional concern over new construction requirements. However, if you establish the property is indeed under one year old and has never been occupied, proceed to the following website to clearly determine the category of new construction processing your situation falls under: http://www.fhasecure.gov/offices/hsg/sfh/ref/sfhp1-8b.cfm.

In most situations, you will be processing “existing construction” or “under construction” properties and will need to determine the exact file processing needs for each category which you can find at http://www.fhasecure.gov/offices/hsg/sfh/ref/sfhp1-8c.cfm.

You will need to determine if the property lies within a termite tip zone because if it does, you will need to obtain completed forms NPCA-99a and NPCA-99b from the builder. You can find termite tip zone guidance at http://www.hud.gov/offices/hsg/sfh/ref/sfh1-23a.cfm and you’ll find further explanation and information on the new construction pest control requirements at http://www.hud.gov/offices/hsg/sfh/ref/sfhp1-23.cfm.

It’s important to establish if the municipality that oversees the subject property issues both a building permit and a certificate of occupancy or equivalent. If they do not, you will likely need evidence of 10-year warranty plan coverage from the acceptable list of providers you can find at http://170.97.67.13/offices/hsg/sfh/ins/hoctenyr.pdf.

You will need to obtain completed HUD 92541 and HUD 92544 from the builder. The appraiser must receive a copy of the completed HUD 92541 prior to appraising the property and must clearly indicate having received and reviewed and/or include a copy of the form as evidence of compliance with the rule.

New construction processing can be very confusing in some cases so it’s very important to be aware of where to access these resources to determine the processing needs of each individual situation. The bottom line is that if you are aware of the age of the property up front, you can head off what can lead to a long list of conditions later in the process.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.