December 21, 2020
Do you own land you want to build a home on with a low down payment? Do you want to build a house from the ground up and purchase the land at the same time? There is a construction loan that can allow you to do both–the One-Time Close construction mortgage.
These loans, also known as OTC mortgages or single-close mortgages, are offered as FHA mortgages (with a low 3.5% down payment requirement for any financially qualified borrower), USDA loans (need-based mortgages with income caps and other requirements) and VA construction loans with no down payment required in most cases.
Some potential homeowners may be hesitant to commit to a construction loan–the process is unfamiliar to them, and to some it just seems a bit overwhelming. But getting started is easier once you understand the requirements of these unique and uniquely useful home loans.
For example, expect a slightly higher credit standard for a construction loan whether you are applying for an FHA One-Time Close mortgage, a VA construction loan, or the USDA version.
Credit score requirements for a construction loan may fall into the 600s–the VA, FHA, and USDA FICO score minimums as written in their rule books are lower, but lender standards also apply and such standards usually fall in the 600 range.
In cases where the land is being purchased in conjunction with the mortgage and the land is financed as part of the loan, a down payment may be required depending on the program you choose.
Borrowers who are considering a construction loan but need down payment help should know that for One-Time Close construction loans, down payment assistance is generally not permitted. You should anticipate having to make the down payment yourself and budget accordingly.
One-Time Close construction loans are for construction projects that don’t have special construction issues–these loans are for typical home construction using plans the borrower approves.
Barndominiums and tiny homes, which are housing fads some applicants might be interested in pursuing, require specialized construction that falls outside the scope of the FHA, USDA, and VA One-Time Close programs. If you are interested in a tiny home, shipping container home, log cabin house, or other “specialized” projects, the OTC program is not for you.
Borrowers should expect a fixed-rate mortgage on a One-Time close loan; this is an advantage to the borrower since rates will stay constant, and won’t move up or down in the construction phase. The rates stay the same when construction is over and you have moved into your new home.
The rate you negotiate with the lender is the rate you will pay for the lifetime of the loan unless you refinance, and refinancing with an FHA, VA, or USDA mortgage offers some options you might not find with a conventional loan that make the FHA One-Time Close loan or its’ other government-backed counterparts to be quite attractive.
Down payment issues for OTC loans are different than for existing construction mortgages. These construction loan programs offer loans to qualifying borrowers that have no down payment IF the applicant owns the property the home is being built upon and there is enough equity in the land to meet the minimum borrower investment requirement for loan approval.
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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