November 20, 2018
There is a type of home loan borrowers can apply for when they want a house built for them from the ground up. These mortgages are known as One-Time Close loans and are offered by the VA, USDA, and FHA programs via a participating lender. Do you prefer to have a home built just for you rather than purchasing someone else’s property?
What Are FHA Construction Loans?
The FHA construction loan known as a One-Time Close (OTC) mortgage, like its’ USDA and VA counterparts, offers qualified borrowers a single mortgage for the construction project; traditionally home construction loans featured two applications, two closing dates, and two chances to have a loan application approved or denied.
There is one loan for the construction itself (which must be paid for along with the materials and other expenses) and there is one for the actual home loan.
Anyone who has ever waited for loan approval for any reason knows how difficult it can be to wait for approval; imagine having to wait twice. FHA One-Time Close loans eliminate the second application and the loan closes before construction begins.
FHA One-Time Construction Loan Requirements
FHA OTC loans are like any other FHA mortgage in that the FHA loan approval guidelines are similar. FHA standards (NOT lender standards which also apply) include the following:
- A FICO score of at least 580
- Down payment of 3.5%
- A debt to income ratio less than 43%
- The new home must be your primary residence
- Proof of employment
- Proof of income
- No late or missed payments in the last 12 months for best chances of loan approval
USDA One-Time Close and VA One-Time Close equivalents will have their own standards, but the “12-month rule” of no late or missed payments is fairly universal.
Lender Requirements For One-Time Close Construction Loans
Like all other programs, the FHA One-Time Close loan has its’ program-defined minimum requirements but the lender will have certain requirements beyond this.
You may find some lenders require FICO scores of 640 or higher, some lenders won’t approve a construction loan that requires “manual underwriting” because of certain credit issues, and you may find the types of housing a given lender is willing to approve.
For example, you may find lenders who are only willing to finance construction loans for single-unit properties, some may not approve OTC mortgages for mobile or manufactured homes, etc. There are lenders who are willing to issue such loans but you shouldn’t expect all participating financial institutions to do so.
Why choose an FHA One-Time Close construction loan over a USDA or VA version? FHA loans are the most widely available; USDA One-Time Close loans are for approved rural areas only, and VA mortgages across the board or open only to qualifying veterans and certain surviving spouses. The FHA OTC loan is more widely available.
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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