February 1, 2018
FHA One-Time Close / Single-Close Construction Loan rules for maximum mortgage amounts and down payments are found in the FHA loan handbook, HUD 4000.1.
The FHA One-Time Close mortgage, also known as a construction-to-permanent loan, lets borrowers apply for a loan to have a home built for them using only a single application, loan approval, and closing date. HUD 4000.1 describes it as follows:
“A Construction to Permanent Mortgage combines the features of a construction loan (a short-term interim loan for financing the cost of construction) and the traditional long- term permanent residential Mortgage with a single mortgage closing prior to the start of construction”.
FHA One-Time Close / Single-Close Construction Loan Maximum Loan Amount Rules
Maximum mortgage amounts for FHA One Time Close loans are determined “by using the appropriate purchase Loan-to- Value (LTV) percentage of the lesser of the appraised value or the documented Acquisition Cost” according to HUD 4000.1. The documented Acquisition Cost of the Property includes the following:
-Builder’s price to build;
-Borrower-paid extras over and above the contract specifications and/or out-of- pocket expenses not included in the builder’s price to build;
-Cost of the land if already owned, or with an acceptable gift documentation, the appraised value of the land may be used instead of the cost;
and
-closing costs associated with any interim financing of the land.
HUD 4000.1 includes other requirements in this area; if the land is being purchased from the builder, that expense is included in the builder’s price to build.
In cases where the work is being done with manufactured housing, FHA loan rules say the price to build must include the price of the unit(s) purchased with the FHA loan plus all on-site installation costs.
FHA One-Time Construction Loan Rules For Down Payments
Typical down payment rules apply for One-Time Close mortgages; the lender is required to verify the sources of all funds for the borrower’s Minimum Required Investment (MRI) also known as the down payment. But for One-Time Close loans, there is an additional rule:
“The Borrower may utilize any cash investment in the Acquisition Cost of the Property to satisfy the Minimum Required Investment (MRI).”
That is an important aspect of these construction loans to consider-discuss this with your loan officer if you aren’t sure how this may affect your loan transaction.
When it comes to verifying the source of MRI funds associated with the cost of acquiring the land, HUD 4000.1 instructs the lender to document that the “cash investment was from an acceptable source of funds in accordance with TOTAL or manual underwriting requirements as applicable”.
The lender is required to document the date of purchase, cost of the land, and other details by obtaining a copy of the closing disclosure.
Furthermore, “The Mortgagee must document any Borrower-paid extras over and above the contract specifications and any out-of- pocket expenses not included in the builder’s price to build by obtaining evidence funds were derived from an acceptable source. The Mortgagee must obtain an itemization of the extras and expenses and the cost of each item.”
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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