Does the FHA Offer an Owner-Builder Loan Option?

February 13, 2023

Does the FHA loan program include an owner-builder loan? Some borrowers want to build or renovate a home themselves without a contractor’s help. An owner-builder loan can help but in typical cases, the loan applicant must show proof they can actually succeed in doing the work.

There are some essential things to know about the types of FHA home loan options that exist for those who want to perform the labor, but the first and most important thing to know is that there are not one but two sets of rules which may apply in such cases.

FHA Loan Rules Versus Lender Requirements

FHA loan rules in HUD 4000.1 state clearly that a borrower can do their own contract work in many cases, but the applicant may have to show proof they have the experience to get the job done.

Lender standards, on the other hand, may vary. You may find that for some types of loans the lender simply won’t permit the borrower to do the labor.

FHA Loan Options

While the FHA Guidelines may allow for potential borrowers who are licensed contractors to do their own work, FHA lenders can add “Overlays” which are additional requirements over and above the published minimum guidelines.  We are not aware of any FHA lenders allowing borrowers to do their own work on any project.  But there are FHA loans that allow you to build or renovate a home. The FHA 203(k) Rehabilitation Loan is one choice, and FHA One-Time Close construction loans are another. The 203(k) loan comes in two sizes, and the smaller version may be perfect for some who want to renovate themselves.

The One-Time Close loan features the same down payment requirement as any other FHA forward mortgage. You may find lenders unwilling to let you do the work on your own house-building project.

FHA Options That Don’t Require Permission

Some may consider FHA Cash-Out Refinancing to renovate an existing home their way. There is no restriction on the funds you take with a cash-out refinance, and therefore no issues with the lender when it comes time to swing your own hammer to renovate a home or even build an accessory dwelling unit (ADU) like a granny flat or a similar project.

Non-FHA Options

The previously mentioned owner-builder loan type is offered by conventional lenders, as are One-Time Close construction loan options. Credit qualifying requirements may be more strict for these conventional loans compared to FHA loans and even some other conventional equivalents.

Speak to a lender about your home loan options if you are set on being your own contractor, but don’t be surprised if you find less resistance to hiring a third party than doing the labor yourself.

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