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Sure, the interest rate does need to be at the federal minimum so it is not construed as a gift with attendant gift tax consequences. Even though that loan wouldn't show up on your credit report, it would still need to be disclosed on your construction loan application so they can properly determine LTV in loaning you money to build a home.
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Since it is my family selling the property to me do they have to sell it at exact FMV. That is, if they sell it to me for less than FMV will they be hit with gift taxes?\
No, they can sell for any price but to the extent the "sale" price is below FMV you are receiving a gift. So it would be part gift and part purchase
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