April 12, 2021
Are you interested in building your home from the ground up? A loan called the One-Time Close construction mortgage can help you as a first-time home buyer or as an experienced borrower. You don’t have to be a first-time borrower to take advantage of a low-down payment or even a zero down payment home loan you can use to build a house on your own lot.
Among the first questions you are likely to ask about this type of loan? How much you’ll be required to provide as your down payment. And the answer you get depends on what kind of construction mortgage you seek. Do you know how much money you need to save up for a down payment?
That depends on the nature of your mortgage; VA, FHA, USDA, conventional, etc. Remember that for government backed mortgage loans such as FHA, USDA, and VA mortgages, the down payment requirement is a completely separate issue from your other closing costs.
That means that any money you pay in closing costs is NOT deducted from the down payment requirement. You’ll need to anticipate both closing costs and the down payment amount when saving up for the loan.
How Much Down Payment Is Required?
For conventional loans, the down payment requirement will vary depending on your lender, but in general if you want to avoid Private Mortgage Insurance (PMI) you’ll likely have to pay 20% down, which can also earn you a lower interest rate in some cases.
No Money Down Construction Loans
VA and USDA construction loans may feature a zero-down payment option, but in the case of VA One-Time Close loans, you may find that making a down payment can help you reduce the cost of the VA Loan Funding Fee.
Making a down payment also helps lower the monthly mortgage payment you’ll be making once the loan closes in any case, but the reduced VA loan funding fee can help further reduce the overall costs of the loan.
In general, VA loans that do not require a down payment may still require money up front if the sale price of the property exceeds the appraised value. This is not quite the same as a down payment–the money up front is required to make up the difference between the appraised value and the sale price. But in general, for construction loans the down payment issues you’ll be concerned with have more to do with sourcing of funds where applicable.
Low-Down Payment Construction Loans
FHA One-Time Close Construction loans require a minimum 3.5% down payment, the same as all other FHA purchase loans. This low down payment may seem surprising to those who have never explored their construction loan options before, but the FHA loan program was designed to help people find affordable homes with a lower up front financial burden.
Construction Loans And Down Payment Assistance
In general, if you seek a construction loan you should expect to provide your own down payment. Many lenders will not permit down payment assistance on construction loans. There is no specific prohibition in FHA or VA loan rules saying construction loans cannot have down payment help, but lender standards also apply and you may find that down payment assistance isn’t allowed with that financial institution. If you need a construction loan, it pays to begin saving for your expenses and down payment as early as you can.
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: