FHA Updates New Construction Financing Requirements

The Federal Housing Administration (FHA) today published Mortgagee Letter (ML) 2020-36, FHA New Construction Requirements. This guidance updates the requirements for new construction financing for Title II Single Family forward mortgages in alignment with the regulatory amendments announced in the 2018 final rules that streamlined inspection and warranty requirements.

Changes to HUD’s maximum financing policy for new construction include:

• Eliminating Early Start Letter and Pre-Approval requirements;
• Consolidating requirements regardless of loan-to-value (LTV);
• Adding Form HUD-92544, Warranty of Completion of Construction, for all new construction;
• Providing alternative inspections by a third party, that is a registered architect or structural engineer, in the absence of International Code Council (ICC) certified Residential Combination Inspector (RCI) or Combination Inspector (CI); and
• Updating when Form HUD-NPMA-99-B, New Construction Subterranean Termite Service Record is required, to align it with the four acceptable termite treatment applications reflected on the related Form HUD-NPMA-99-A, Subterranean Termite Protection Builder’s Guarantee.

This guidance may be used immediately for existing cases and must be used for FHA case numbers assigned on or after Jan. 4, 2021.