November 18, 2019
Are you thinking about using a construction loan to build a home from the ground up on your own land? The FHA One-Time Close construction loan features a low 3.5% down payment even for those who have never borrowed or purchased a home before.
There is also a VA version of the One-Time Close construction mortgage offering 0% down to qualified veteran borrowers, those who still serve, and certain military spouses.
The One-Time Close construction loan offers a single mortgage application for both the construction of the home and the mortgage itself; borrowers no longer have to apply for one loan to build and one loan for the mortgage. That means peace of mind during the entire process, but there are some rules and guidelines you’ll need to follow during the construction loan and the project.
Here is some good advice about what to do during your One-Time Close construction loan.
Contractors
You will need to plan on hiring a licensed general contractor, and while FHA loan rules technically permit the borrower to act as her own builder, you may find the lender does not allow this or only permits it under certain circumstances.
You will need to ask your loan officer what is possible in this area since lender standards apply in addition to FHA loan rules.
If there are significant changes in the project, or if there are delays or rising costs, you will need to keep your loan officer in the loop. That is especially true if the contractor has repeated issues in this area.
Remember to ask about your builder’s risk insurance policy, as well as standard home insurance details–does your lender’s name appear as the mortgagee? This is required at closing time, so make sure you give yourself and the process enough time to complete before your closing date.
Funding and Time Tables
Monitor the One-Time Close construction funds carefully; you and your lender will have an easier time solving them if they are detected as early as possible. You should plan on finishing your entire project as faithfully as possible to the original plans.
If you are not experienced with construction loans, you should ask your lender and partner with a reputable title company. Between these two resources, you should be able to quickly determine what is appropriate for draws, payments, etc.
You should ask the lender and title company what limitations there are on cash draws and related issues. Most forward mortgages, especially FHA mortgages, have limits on the amount of cash that can go to the borrower except in the form of refunds. For construction loan draws there will be similar restrictions on how the funds can be withdrawn, paid, etc.
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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