September 18, 2017
What is an FHA new construction loan compared to existing construction loans? Essentially the difference involves whether the home has been occupied or not since the time it was completed. FHA loan rules governing how such properties are classified can be found in HUD 4000.1, the FHA Loan Handbook.
Existing Construction
Existing construction loans are for structures that have been occupied at least once since the time they were completed. Such properties may be very new, others may be very old. “Existing Construction” loan procedures are less complex than for New Construction loans because the permits, escrows, inspections and other aspects of building a home have already been satisfied before the borrower comes along to buy the property.
New Construction
This type of property has never been occupied by an owner. Some new construction loans are different than others depending on the stage they are in, and they are classified as follows:
-Proposed Construction refers to a Property where no concrete or permanent material has been placed. Digging of footing is not considered permanent.
-Under Construction refers to the period from the first placement of permanent material to 100 percent completion with no Certificate of Occupancy (CO) or equivalent.
-Existing Less than One Year refers to a Property that is 100 percent complete and has been completed less than one year from the date of the issuance of the CO or equivalent. The Property must have never been occupied.
Furthermore, we learn from HUD 4000.1, “FHA treats the sale of an occupied Property that has been completed less than one year from the issuance of the CO or equivalent as an existing Property.”
The reasons for these classifications? The lender is required to obtain different documentation for properties depending on their current state as listed above. Building permits, flood zone reports, builder warranties and other paperwork will be required depending on the type of property.
Documentation Required
If a borrower is having a home custom built using an FHA One-Time Close loan or a traditional construction loan, certain exhibits, permits, inspections, and other paperwork will also be required in addition to the usual loan application documents. Another difference between the home that is custom built with a One Time Close loan and other types of FHA loans? The fact that the borrower is having the home built to suit rather than buying an existing structure that was not initiated by the borrower’s purchase.
Borrowers interested in FHA One-Time Close construction loans should know that we have compiled a list of licensed FHA One-Time Close lenders for each state. This is populated by qualified mortgage loan officers who work for lenders that know the product well.
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.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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