September 19, 2017
How do FHA One-Time Close / Single-Close construction loans work? These FHA mortgages are for borrowers who want to have a home built for them from the ground up rather than looking for an existing home to purchase and move into right away. Many participating FHA lenders offer these loans for “stick built” homes, which are homes built on-site (as opposed to a manufactured home which is delivered pre-built in sections and assembled).
What are the rules for this type of FHA construction loan? From the FHA/HUD official site, we learn that a One-Time Close loan is also known as a “construction to permanent” loan. “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.”
The borrower is required to work with a licensed general contractor who is approved to work with your FHA lender. In some cases where the borrower also wants to act as the builder, FHA loan rules state, “The borrower may act as the general contractor, only if the borrower is also a licensed general contractor.”
The procedure for these one-time close type of construction loans involves the borrower purchasing the land “at the closing of the construction loan”, or the borrower is permitted to have owned the land for six months or less “at the date of case number assignment”. When closing time arrives and after FHA loan funds are “disbursed to cover the purchase of the land, the balance of the mortgage proceeds must be placed in an escrow account to be disbursed as construction progresses”.
FHA loan rules dictate that the maximum amount of the loan must be calculated using the purchase loan-to-value percentage “of the lesser of the appraised value or the documented Acquisition Cost”.
How does the lender arrive at the documented Acquisition Cost? That cost includes the following:
-The 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.
These loans aren’t like new purchase FHA mortgage loans for existing construction, where the loan payments become due right away. It’s understood that construction loans mean a longer span of time before the borrower can occupy and use the property. FHA loan rules for One-Time Close construction loans state, “Amortization of the permanent mortgage must begin no later than the first of the month following 60 days from the date of the final inspection or issuance of the Certificate of Occupancy (CO)”.
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.
Browse by Date: