December 13, 2017
FHA One-Time Close / Single-Close construction loans feature a single loan application and closing date for both the construction phase of the loan and the “permanent” portion of the loan. Like other FHA mortgages, an appraisal is required on the property to be secured by the mortgage.
In general, FHA loan appraisal requirements include the following guidelines on the timing, as found in HUD 4000.1, the FHA loan handbook:
“The effective date of the appraisal cannot be before the FHA case number assignment date unless the Mortgagee certifies that the appraisal was ordered for conventional lending or government-guaranteed loan purposes and was performed pursuant to FHA guidelines.” While this may not normally be an issue for construction loans given the timing of the appraisal, another portion of the same section of the FHA appraisal rules should be carefully heeded:
“The intended use of the appraisal must indicate that it is solely to assist FHA in assessing the risk of the Property securing the FHA-insured Mortgage. Additionally, FHA and the Mortgagee must be indicated as the intended users of the appraisal report.”
That means that the appraisal is not, even on a newly constructed home, intended to be anything close to a home inspection or a seal of approval. Borrowers should consider paying for the optional home inspection (which is arranged by and paid for by the borrower) to insure that the quality of the completed work is as expected.
There are things an FHA appraiser needs to complete the appraisal process on a new construction property. The list of “standard” items includes the following:
-a complete copy of the executed sales contract for the subject, if a purchase transaction; the land lease, if applicable;
-surveys or legal descriptions, if available;
-any other legal documents contained in the loan file;
-a point of contact and contact information for the Mortgagee so that the Appraiser can communicate any noncompliance issues.
New construction appraisals require the following additional steps:
“When performing an appraisal for a sales transaction or on New Construction, the Appraiser must also review and analyze the following:
-the complete copy of the executed sales contract for the subject; and
-documents related to New Construction, including plans, specifications, and any exhibits provided that will assist the Appraiser in determining what is to be built, or, if now Under Construction, what will be built when finished;
-report the results of that analysis in the appraisal report.”
FHA appraisals for One-Time Close construction loans may, like the appraisals for existing construction homes, require corrections, repairs, or other fixes. A compliance inspection may be required to determine if the corrections were made according to the specifications required by the appraiser.
Borrowers should anticipate having to pay for compliance inspections the same way they would if they were purchasing an existing construction home.
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: