January 29, 2018
FHA One-Time Close / Single-Close construction loans have different requirements for down payments and interest rate issues can be more complex; many borrowers are interested in this home loan but aren’t clear on the finer points.
Today we examine how down payment issues and interest rate rules apply to the FHA One-Time Close construction loan.
The FHA loan handbook, HUD 4000.1 describes the One-Time Close loan, also known as an FHA construction-to-permanent mortgage, as a loan that “…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 Construction Loan Down Payment Rules
HUD 4000.1 allows for some unique down payment sources that don’t apply for certain other types of home loans. According to page 445, for One-Time Close construction loans, “The Borrower may utilize any cash investment in the Acquisition Cost of the Property to satisfy the Minimum Required Investment (MRI).”
Furthermore, the lender is required to “document the cash investment was from an acceptable source of funds in accordance with TOTAL or manual underwriting requirements as applicable” and your lender will have to have supporting evidence that shows the cost of the purchase.
The borrower must be able to document when the land was bought, and whether there were any “borrower-paid extras” that were rendered “over and above the contract specifications and any out-of- pocket expenses not included in the builder’s price to build”.
The lender is required to do so in order to insure those funds come from an acceptable source, according to HUD 4000.1.
FHA One-Time Close Construction Loan Rules For Interest Rates
While typical FHA home loan interest rate guidelines apply, there is a section unique to this type of loan due to the circumstances of the loan. Traditionally, FHA loan interest rates are negotiated between the lender and the borrower. This is true of FHA One-Time Close mortgages too, but some borrowers don’t know that there is an Adjustable Rate option for the construction phase of the loan.
According to HUD 4000.1:
“During the construction period, the interest rate may be variable. The Mortgagee and the Borrower must enter into an agreement that:
-documents the range in which the interest rate may float during construction;
-documents the point of interest rate lock-in;
-specifies that the permanent Mortgage will not exceed a specific maximum interest rate;
and
-permits the Borrower to lock in at a lower rate, if available and they have not already locked in a rate.”
Your FHA lender will explain the interest rate lock-in requirements for that financial institution; state law and other factors may apply in addition to lender standards and FHA loan minimums.
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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