What Builders Need to Know About FHA Loans


If buyers will be using an FHA loan to purchase a home you’ve built, there are certain requirements that you, the builder, will have to meet (including structural warranty coverage). Here are 4 things you need to know about working with these buyers.

1. When a buyer uses FHA funds for their mortgage, you may have to meet certain warranty requirements

The Department of Housing and Urban Development (HUD) creates the guidelines for builders who have buyers using FHA funds for their mortgages. These include:

  • 1-year warranty against defects in the home.
  • 2-year warranty against systems defects in the home.
  • 10-year warranty against structural defects in the home.

That means you’ll want to work with a warranty company that is approved by HUD to offer these types of coverage (such as 2-10 HBW).

2. The mortgage underwriter controls everything

HUD has their guidelines, but they aren’t hard-and-fast rules. Adhering to the guidelines listed above is generally a decision to be made by the mortgage underwriter. The underwriter will determine whether or not you need to purchase a warranty from a HUD-approved company.

Some underwriters will accept local inspections in place of warranty coverage, though it varies from one lender to the next.

3. Needing warranty coverage at the last minute can delay closing

Many new home builders have heard something like this: “The mortgage is ready to close, but because your buyer has a FHA loan, you need a 10-year, HUD-approved warranty.”

How quickly you can get this coverage will depend on the warranty company you choose to work with. Some providers have lengthy applications that ask for contact information and references from past buyers, which can be time-consuming to get. They might also ask for profit and loss statements and other financial information.

However, some companies have applications that can be filled out in 5-10 minutes. 2-10 HBW’s application is like this, which means you can have warranty coverage approval for your builds in 72 hours or less. Builders on tighter timelines can even give us a call at 877.777.1344 to discuss faster options.

4. Warranty coverage is affordable

The cost of warranty coverage varies from one home to the next and is based on the overall value of the home. It represents a small percentage of the home’s cost, making it an affordable option for builders who want to protect their homes and their buyers.

Many builders even auto-enroll the homes they build in a warranty program, which ensures that the mortgage underwriters’ criteria for working with buyers with FHA loans will always be met.

Structural Warranties can protect builders and their buyers from devastating structural problems. But, maybe even more importantly, they give homeowners that all-too-important peace of mind that when something goes wrong, they’re covered. Reduce your risk with 2-10 Structural Warranties for Home Builders, become a member today!