Construction and New Homes:
Construction Definitions

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Chapter 1
Appraisal and Property Requirements
Page 1-08b

A complete list of items required for high/low ratio loans found in HUD Handbook 4145.1 Appendix 11.

1. Proposed Construction are properties approved for mortgage insurance prior to the beginning of construction, defined as the first placement of concrete or other permanent materials. This means that the DE Statement of Appraised Value or Early Start letter has been issued by the DE Underwriter for the property prior to the first placement of concrete or other permanent materials.

2. Under Construction are those properties in which the first placement of concrete or other permanent materials has begun, but construction is not yet 100% complete.

3. Existing Construction properties that are 100% complete at the time of appraisal. "Complete" means everything is complete including the installation of buyer preferences (flooring, appliances, etc.), utilities are on and fully functioning and all site improvements completed at the time of appraisal (Ready for Occupancy). If no repair or correction conditions are made by the appraiser, the appraisal serves as the final inspection as per HUD Handbook 4145.1 Paragraph 6-3-A(3).

4. Pre-Approval For a high ratio loan, HUD requires the property to be pre-approved prior to the start of construction and obtain the required construction inspections, which; at a minimum are the initial, framing and final inspections. If the property is not pre-approved with evidence of the required inspections, then a final inspection and a HUD approved 10-year warranty is required for a high ratio loan.

a. Pre-Approval: HUD defines pre-approval as follows:

1. Appraised prior to the start of construction. The property is appraised and the DE lender issues form HUD-92800.5b, Conditional Commitment/Statement of Appraised Value, prior to the start of construction, OR
2. Building Permit & Certificate of Occupancy. (Mortgagee Letter 2001-27) In those jurisdictions that issue BOTH a building permit prior to the start of construction, (or it's equivalent) and a certificate of occupancy, (or it's equivalent), HUD will accept these as evidence of pre-approval and inspections. This process DOES NOT apply to condominium properties or manufactured housing due to special requirements applicable to these housing types. OR
3. Early Start Letter issued prior to start of construction. Builder may request an early start letter prior to the start of construction, completion of the appraisal and issuance of HUD-92800.5b Conditional Commitment/Statement of Appraised Value.
4. Regardless of the process used, the lender must certify by using Form HUD 92900-A, page 3, that the property is 100% complete (both on site and off site improvements) and that the property meets HUD's minimum property standards. (See Mortgagee Letter 2001-27)

b. Inspections: HUD accepts the following new construction inspections:

1. FHA Compliance Inspections. When the inspections are performed by an FHA Compliance Inspector, form HUD-92051 Compliance Inspection Report must be completed and submitted in the case binder.
2. Local Building Department Inspections -Copy of building permit and certificate of occupancy (or their equivalent) for properties that meet the requirements of Mortgagee Letter 2001-27.
3. Appraisal, only if the property is 100% complete at the time of appraisal and meets the requirement of HUD Handbook 4145.1 Paragraph 6-3. This includes completion of grading, drainage and functional utilities.
   
   Note: HUD does not accept final inspections by local authority on condominiums or manufactured homes. An FHA compliance inspector must complete final inspections for these property types. For manufactured homes, HUD will also accept inspections by the engineer that completed the foundation certification.
   

C. Re-Sales: HUD/FHA will treat re-sales to a second or subsequent purchaser of new less than one year old properties that are 100% complete including all on and offsite improvements as existing properties and the new construction exhibits normally submitted will not be required, provided that:

1. The re-sale is an arms length transaction.
2. The lender shall clearly identify the transaction is a re-sale to a second or subsequent purchaser in the case binder to avoid an NOR issued by the Homeownership Center for missing new construction exhibits.
3. For manufactured home properties, the engineer preparing the foundation certification is required to make a site inspection and the property must be 100% complete at time of inspection. Foundation certifications based on proposed construction will not be acceptable.
4. While a builder selling a newly built home is not subject to the property flipping rule, a subsequent seller would be.

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	Introduction
	Construction definitions
	General requirements
	Minimum property standards
	Subdivision approvals
	Final inspection on properties