September 28, 2016
A reader asks, “Does FHA include loans for a construction to permanent mortgage?If so, can the construction be done by a licensed general contractor that does custom builds or does it have to be done by a licensed general contractor that only does spec builds? Is there other criteria/inspections that are specific to construction to permanent mortgage that are specific to an FHA loan?”
This is a complex question, and FHA construction loans have issues far too numerous to address in a single blog post, but we’ll tackle the basics. FHA loan rules do allow for loans for new construction/proposed construction. This type of loan is more complex than a typical FHA mortgage and potential applicants are encouraged to discuss this option with a loan officer to learn what may be specifically required-lender standards will vary and there is no way to predict what may be allowed at one financial institution but not another.
HUD 4000.1 defines the construction-to-permanent loan as follows:
“A Construction to Permanent Mortgage combines the features of a construction loan (a short-term interim loan for financing the cost of construction) and the traditional long-term permanent residential Mortgage with a single mortgage closing prior to the start of construction.”
When it comes to who does the work on the construction, HUD 4000.1 states, “The Borrower must have contracted with a builder to construct the improvements. The builder must be a licensed general contractor. The Borrower may act as the general contractor, only if the Borrower is also a licensed general contractor.”
For inspection issues on FHA construction loans, we learn that the required inspections include, but may not be limited to the following requirements:
–copies of the building permit and CO (or equivalent);
–three inspections (footing, framing and final) performed by an FHA Roster Inspector on form HUD-92051, Compliance Inspection Report (for Modular Housing, footing and final only);
–three inspections (footing, framing and final) performed by the local authority with jurisdiction over the Property (for Modular Housing, footing and final only); or
–a 10-year warranty and final inspection issued by the local authority with jurisdiction over the Property or an FHA Roster Inspector.”
Please note that the above is the requirement for site-built homes and condos, and is for proposed construction projects. Requirements vary for other types including under construction and new construction homes.
Again, this is just a quick overview-borrowers should get in touch with a loan officer to learn more about specific requirements. These may vary depending on state law, lender standards, changes in FHA policy, etc. You may find variations in down payment issues, escrow, and other feature.
Want More Information About One-Time Close Loans?
One-Time Close Loans are available for FHA, VA and USDA Mortgages. These loans also go by the following names: 1 X Close, Single-Close Loan or OTC Loan. This type of loan allows for you to finance the purchase of the land along with the construction of the home. You can also use land that you own free and clear or has an existing mortgage.
We have done extensive research on the FHA (Federal Housing Administration), the VA (Department of Veterans Affairs) and the USDA (United States Department of Agriculture) One-Time Close Construction loan programs. We have spoken directly to licensed lenders that originate these residential loan types in most states and each company has supplied us the guidelines for their products. We can connect you with mortgage loan officers who work for lenders that know the product well and have consistently provided quality service. If you are interested in being contacted to one licensed construction lender in your area, please send responses to the questions below. All information is treated confidentially.
OneTimeClose.com provides information and connects consumers to qualified One-Time Close lenders in an effort to raise awareness about this loan product and to help consumers receive higher quality service. We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.
Please note that investor guidelines for the FHA, VA and USDA One-Time Close Construction Program only allows for single family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes). You CANNOT act as your own general contractor (Builder) / not available in all States.
In addition, this is a partial list of the following homes/building styles that are not allowed under these programs: Kit Homes, Barndominiums, Log Cabin or Bamboo Homes, Shipping Container Homes, Dome Homes, Bermed Earth-Sheltered Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes, Tiny Homes, Carriage Houses, Accessory Dwelling Units and A-Framed Homes.
Your email to info@onetimeclose.com authorizes Onetimeclose.com to share your personal information with a mortgage construction lender licensed in your area to contact you.
- Send your first and last name, e-mail address, and contact telephone number.
- Tell us the city and state of the proposed property.
- Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good – (640-679), Fair – (620-639) or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.
- Are you or your spouse (Co-borrower) eligible veterans? If either of you are eligible veteran’s, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio VA will allow – there are no maximum loan amounts as per VA guidelines. Most lenders will go up to $1,000,000 and review higher loan amounts on a case by case basis. If not an eligible veteran, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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