September 1, 2020
When do mortgage payments begin on a construction loan? If you are building on your own lot with a VA One-Time Close loan or an FHA OTC construction loan, you’ll want to know what you are liable for and when–and you’ll also want to know how delaying your mortgage payments until the home is complete will affect your monthly payments down the road.
VA and FHA mortgage loan options include the ability to build a home on your own land using a VA One-Time Close construction loan or the FHA equivalent. One-Time Close loans allow you to build a house on your own land or purchase land in conjunction with building a home.
There is a single application and approval process–these loans are potentially more streamlined and easier to manage than construction loans that have two applications (one that pays for the construction and one for the house purchase itself) and two closing dates.
Building a home takes time. Borrowers apply for the construction loan (which can include land if it is purchased in conjunction with the construction) once it is approved the construction phase can begin, but that process may go longer than you anticipate. Delays and contingencies can occur during the construction phase and borrowers should not be surprised by this.
With that in mind, when is the first mortgage payment on a VA construction loan due? Do you start paying right away, or do you wait until you move into the home once all the construction and inspections have taken place? This depends on which program you are using as the rules will differ–lender standards will also apply.
For FHA One-Time Close loans, HUD 4000.1 has the rules that explain when the first mortgage payment is made; for FHA OTC mortgages, “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 CO.” You will need to discuss the final payoff date and amount with your lender–ask specifically about balloon payments and whether that is a concern with your mortgage.
What about VA One-Time Close construction loans? The VA Lender’s Handbook, VA Pamphlet 26-7, states in Chapter 7 that a homeowner “begins making payments on a construction/permanent home loan only after construction is complete. Therefore, the initial payment on the principal may be postponed up to 1 year, if necessary.”
Borrowers need to be aware of the VA loan requirement that such loans “must be amortized to achieve full repayment” within the remaining time on the loan as originally written.
“The VA requirement that loans be amortized with approximately equal payments and the principal must be reduced at least once annually, also applies to construction loans. However, the final installment may be for an amount up to five percent of the original principal amount of the loan” according to the VA Lender’s Handbook..
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.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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