January 15, 2021
If you are in the market for a home but would prefer to have a house built to your specifications instead of buying another person’s dream home, the One-Time Close mortgage can help you build instead of buy.
This type of loan has an FHA equivalent with low down payment requirements (3.5% in typical cases) and there’s also a VA home loan option for those with qualifying military service.
The FHA and HUD recently updated its rulebook for FHA Construction loans; there are revised definitions of properties that qualify for construction loans as well as new inspection rules.
Back in 2020, the FHA and HUD announced some pending changes to the FHA Single-Family Home Loan Lender’s Handbook, HUD 4000.1 due to policy alterations in 2018 and 2019. Those alterations required the FHA and HUD to rewrite some of HUD 4000.1.
On February 4, 2021, regulatory changes became effective for all applicable FHA construction loans with case numbers assigned on or after that date. HUD 4000.1 now includes the following list of property types that can be guaranteed with an FHA construction Loan mortgage:
- Site Built Housing (single unit properties)
- Site Built Housing (multiple unit properties)
- Condominium units in Approved Projects or Legal Phases;
Not all participating lenders offer construction loans on multi-unit properties. If you need to build one, ask your lender what your options are. The section of HUD 4000.1 titled, Required Inspections for New Construction Financing adds new material including:
For all Site Built Housing and Condominium units (by construction status at time of appraisal) The participating FHA lender is required to obtain:
- Proposed Construction–copies of the building permit (or equivalent) and Certificate of Occupancy (CO); or three inspections (footing, framing and final) performed by the local authority with jurisdiction over the Property or an ICC Certified Residential Combination Inspector (RCI) or Combination Inspector (CI) (for Modular Housing, footing and final only). The new rules state that in the absence of such ICC certified RCI or CI, the Mortgagee may obtain three inspections (footing, framing, by a registered architect or a structural engineer.
- Under Construction–copies of the building permit (or equivalent) and CO (or equivalent); or a final inspection issued by the local authority with jurisdiction over the Property or by an ICC certified RCI or CI; or in the absence of such ICC certified RCI or CI, the Mortgagee may obtain a final inspection performed by a disinterested third-party, who is a registered architect or a structural engineer.
- Existing Less than One Year--a copy of the CO (or equivalent); or a final inspection issued by the local authority with jurisdiction over the Property or by an ICC certified RCI or CI; or in the absence of such ICC certified RCI or CI, the Mortgagee may obtain a final inspection performed by a disinterested third-party, who is a registered architect or a structural engineer.
No borrower action is required for these changes and it’s true that you might not ever know about them without articles like these–but any loan applicant who understand this process (including the need for regulations such as the ones listed above) generally have a better idea about the complexity of a construction loan.
That complexity is why it pays to give yourself extra time to get the loan applied for and executed properly. If you are in a hurry to move into your new home, consider an FHA purchase loan for existing construction; if you can afford to wait out the construction loan process the One-Time Close construction loan can help you get into the home of your dreams.
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.
Posted in:
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.
Browse by Date: