Builder lending units can turn to FHA to help finance homes

Mortgage applications for new residential units declined to a 2026 low last month, but seasonally adjusted numbers show pockets of aspiring homeowners still actively in the hunt, bringing the potential for near-term sales. 

New-home purchase applications fell for a fifth straight month in August, landing 5.5% below their level from a year ago, according to the latest homebuilder lending survey from the Mortgage Bankers Association. Compared to July, activity also dropped 6%.

The pace of year-over-year decreases slowed from 5.7% in July, while on a month-to-month basis, it accelerated from a 1% drop. Monthly numbers were not seasonally adjusted. 

The ongoing rise in mortgage rates this year continues to apply downward pressure on homebuilders and lending partners, according to Joel Kan, MBA vice president and deputy chief economist. The trade association last week reported 30-year conforming rates rising to its highest point this year in early September. 

The direction of rates and their impact on affordability means potential homebuyers are more likely to consider affordable new-construction options that fall within borrower limits of Federal Housing Administration-backed loans, Kan said. 

"More homebuyers turned to FHA loans in response to higher mortgage rates, and those loans accounted for 35% of applications, the highest share in three months," he said. 

First-time buyers, in particular, often look toward FHA programs, which have lower borrowing limits and more flexible qualification standards compared to conventional loans, for the purchase of affordable properties. The group accounts for 55% of new-home purchases, but almost three-quarters of recent buyers in the cohort say they worried about their ability to qualify, a Realtor.com survey found earlier this month. 

At the same time, close to one-third of new constructions purchased by respondents in the Realtor.com survey over the past two years were priced between $250,000 and $450,000. The FHA conforming limit for 2026 is $541,287.

The expansion of the FHA share also comes as the National Association of Home Builders finds a majority of the industry offering cost incentives, such as rate buydowns or closing assistance, to alleviate affordability constraints as well as offload lingering inventory. Meanwhile, another one-third of NAHB members said they are lowering housing costs, suggesting pockets of potential originations for builders' lending affiliates and business partners. 

New-home sales estimates revised upward

While applications are trending downward, MBA revised its seasonally adjusted new-home sales expectations in the other direction based on the latest data. On a more optimistic note, estimates for annual sales ticked up 2.6% between July and August to 664,000 units from 647,000. 

Unadjusted sales volumes slowed last month by 3.7% to 52,000 from 54,000 units in July.

The average loan size of new-home applications inched down to $373,194 in August, compared to $374,438 in July. 

While FHA mortgage applications took their largest slice of new-home volume this summer, conventional activity accounted for the highest August share at 49.5%. Meanwhile, applications for Department of Veterans Affairs-backed loans made up 13.9%. U.S. Department of Agriculture-sponsored loans took the remaining 1.7%.