May 9, 2018
There are many options to consider when planning a One-Time Close (OTC) / Single-Close construction loan. Borrowers who want a home built for them from the ground up can choose between FHA One-Time Close, USDA One-Time Close, and VA One-Time Close construction loans. These are also known as Single-Close loans.
These three programs have some basic differences. VA OTC mortgages allow qualified borrowers to apply with no money down. USDA construction loans may also permit the borrower to apply without the expectation of a down payment, but these construction loans are only for rural areas with populations of up to 35,000 according to a 2017 USDA fact sheet about the program.
One-Time Close / Single- Close Construction Loans: Occupancy Required
Choices between the VA, USDA, and FHA construction loan program basically involve the type of borrower you are; all these construction loans are intended for owner/occupiers.
If you are a borrower interested in a commercial property, or interested in being an owner but not an occupier, these loans are not for you. There’s an occupancy requirement borrowers are required to certify in writing for all three different types of construction loan.
Construction Loans and Escrow
Construction loans require escrow accounts, so this is not really a choice. However, what goes into the escrow account may vary depending on the nature of your loan. Some loans will require funds for both property taxes and mortgage insurance.
However, VA construction loans do not require mortgage insurance the way a conventional loan does, nor does it require an Up Front Mortgage Insurance Premium the way FHA mortgages do. It does, however, require a VA funding fee.
Timing Of Your Construction Loan
VA construction loans, like FHA and USDA construction loans, have specific guidelines about the timing of various stages of the loan. For example, while you may be permitted to purchase land to build your home on (depending on a variety of factors including acceptability of the land itself) a borrower cannot use these One Time Close construction loans to purchase an undeveloped plot of land with no concrete plans to build.
In other words, the borrower has to be committed to both the purchase of the land and the beginning of the construction project within a timely manner following loan approval.
Some One-Time Close / Single-Close mortgage options include the ability to wait to make monthly mortgage payments until the construction phase is completed. But this depends on the borrower and lender negotiating how that delay in payments will affect the remaining monthly mortgage amount due.
Will you agree with the lender to adjust the remaining payments to cover the time spent building the home when no payments are made? Or will you agree with the lender to accept a “balloon payment” of a higher amount than your typical monthly payments as the final mortgage loan installment? These are important issues to discuss with a participating lender.
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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