February 7, 2018
What are the basic differences between FHA One-Time Close / Single Close construction loans and other types of FHA mortgages? Borrowers should understand the basic differences and how they will affect your transaction.
FHA One-Time Construction Loans / Single-Close Construction Loans Have Different Appraisal Requirements
When an FHA loan applicant wants to purchase a home that is considered “existing construction”, which has been built for at least a year or more with at least one owner, the appraisal process happens as a condition of loan approval to insure the property meets minimum FHA standards.
When you apply for an FHA One-Time Close construction loan, also known as an FHA construction-to-permanent loan, an inspection is required to insure the property meets minimum standards. HUD 4000.1 explains what the inspection requirements are for New Construction properties broken down into the nature of the property:
Proposed Construction –
The lender must obtain one of the following:
-copies of the building permit and Certificate of Occupancy (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.
Under Construction
The lender must obtain:
-copies of the building permit and Certificate of Occupancy (or equivalent); or
-a 10-year warranty and final inspection issued by the local authority with jurisdiction over the Property or an FHA Roster Inspector.
FHA One-Time Close Construction Loans Require A 10-Year Builder’s Warranty
A 10-year warranty is one of the items mentioned in the lists above for inspections that is a requirement and a condition of loan approval for FHA construction-to-permanent loans (AKA FHA One-Time Close construction loans). A warranty is required of new construction FHA loans, but not for the purchase of existing construction properties.
What exactly is a ten-year builder’s warranty? HUD 4000.1 defines it as follows:
“Ten-year warranty refers to an agreement between the Borrower and a plan issuer which contains warranties regarding the construction and structural integrity of the Borrower’s dwelling securing the FHA-insured Mortgage. The plan must be a HUD-accepted insured ten-year protection plan.”
FHA One-Time Close Construction Loans May Feature Higher FICO Score Requirements
Depending on the lender, you may find FHA One-Time Close FICO score requirements to be higher than for other types of FHA mortgage loans. Construction loans are a larger investment and a bigger risk for the lender; stricter credit history requirements may apply for this type of home loan.
Some participating lenders may not allow One-Time Close mortgages for homes that are not “stick-built”. A stick-built home is the type of house building project you might expect-a home built from the ground up including pouring a new foundation, etc. A non-stick built home could be a manufactured home, mobile home, 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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