April 7, 2021
Lots of people are interested in building a home using a One-Time Close construction mortgage (OTC). This is a great option for military officers, career enlisted members, military retirees, and veterans who want to construct a new home rather than buying somebody else’s house.
These construction loans are offered by both the VA and FHA loan programs. But which is better for those who have the option of applyinf for a VA mortgage?
Who VA Loans Are For
VA loans and the VA One-Time Close construction loan program are intended for veterans and currently serving military members with qualifying minimum time on duty. Surviving spouses (of military members who have died as a result of military service) may also qualify to apply for the VA loan program.
FHA loans, including the FHA One-Time Close construction loan program, are open to any financially qualified borrower. This is true regardless of whether the applicant has owned property before–you do not have to be a firstime home buyer to qualify for any FHA mortgage.
Which Construction Loan?
VA and FHA One-Time Close construction loans are offered by participating lenders.
If you are eligible for either program, especially military retirees, veterans who started second careers after serving, and those still on duty as well as certain surviving spouses–which construction loan option should they choose?
That isn’t easy to answer–some borrowers decide to apply for an FHA loan because they don’t want to use their VA home loan entitlement. In other cases the borrower may not have enough VA loan entitlement left to use after a previous transaction.
VA loan entitlement can be restored but it usually requires the loan be either paid in full, refinanced, or sold. VA loan rules state that a borrower can have VA loan entitlement restored on a one-time basis after a home has been paid in full.
Common Features Of Both FHA and VA Programs
VA and FHA mortgage programs all feature no penalty for early payoff of the loan. Both programs provide mortgage relief options in times of national disaster or emergency.
VA and FHA mortgage loan programs allow the borrower to get certain seller concessions on the loan to help offset closing costs, but no seller help is permitted with the down payment.
You can apply for Streamline Refinance options with either loan program. Streamline refi loans for VA and FHA allow the lender to process the loan with no credit check or new appraisal. The lender is free to require them anyway but has the option not to.
Comparing VA and FHA Loan Options
One of the biggest issues with VA construction loans that make them very attractive to borrowers? A zero down option. FHA loans require a 3.5% minimum down payment–which is fairly low and applies even for construction loans. But the VA loan program with no down payment requirement in typical cases? This alone makes the VA One-Time Close construction mortgage a very appealing option.
Mortgage Insurance
VA mortgages (including construction loans) have no VA required mortgage insurance where FHA construction loans will require both a monthly premium and an Up-Front Mortgage Insurance Premium or UFMIP which may be financed in its entirety or paid in full at closing time.
The lack of a mortgage insurance requirement makes many military retirees hoping to build their forever home even more convinced to build a home from the ground up using a VA construction loan.
FICO Scores
VA home loans will surprise some borrowers as VA loan rules include no minimum FICO score requirements listed in the VA guidelines–you and the lender will negotiate the loan based on the lender’s credit standards.
As stated above. FHA mortgage FICO scores minimums for the lowest possible down payment are 580 or better. In most cases, FICO scores in the mid-600s are ideal for either loan program.
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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