December 4, 2019
The FHA One-Time Close construction loan is meant for borrowers (first-time home buyers or otherwise) who would rather build a house on their own lot instead of buying an existing property.
The beauty of the FHA One-Time Close loan is that you can be a first-time home buyer and make the same low down payment of 3.5% as any other FHA borrower.
But there are some pitfalls to avoid with FHA One-Time Close mortgages; these are the same mistakes that are made with other home loan transactions, but with a construction loan you may find that more attention is paid to these issues due to the more complex nature of the loan.
Avoid Changes In Your Credit
Changes to your financial status before loan closing means things like adding more debt to your debt-to-income ratio, applying for other credit in the meantime, and similar issues. Missed payments, late payments, and similar problems are also an issue here.
If your debt-to-income ratio isn’t ideal, the addition of new credit will definitely affect your potential to close. FHA loan rules, lender standards, and other requirements all may factor into the decision on how to handles such contingencies.
The best advice here is not to apply for a new credit card or open other types of credit accounts even if you feel certain your closing date is set in stone. Your closing date is subject to change at all times due to lender needs, unforeseen problems, natural disasters, or other variables.
Down Payment Issues
Another mistake to avoid is altering the source of your down payment funds. The FHA loan handbook, HUD 4000.1, instructs the lender that down payments may only come from approved sources and your lender is required to verify all sources of down payment funds.
FHA One-Time Close loan rules will require the lender to verify the source of all down payment funds, even those that were gift funds provided to the borrower.
This is true even after loan approval-if your down payment source changes or you decide to add more funds. the lender is required to review the new source.
The lender needs to ensure these funds are not from a payday loan, or any gift that does not meet FHA and lender standards for gift funds (including a requirement for NO expectations of repayment), and is not sourced from a party that is not permitted to contribute.
If you MUST change the source of your down payment funds, you should take great care to document it meticulously.
In cases where a borrower chooses to alter how One-Time Close down payment funds are paid, you will need to expect a delay depending on circumstances as the lender will have to take the extra time to verify the change.
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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