December 15, 2020
Construction loans have different names–you may read them referred to as home construction mortgages, and depending on the terms and conditions of the loan you may find them referred to as One-Time Close mortgages or Construction-To-Permanent mortgages.
If you want to build a home on your own land or on land you buy in conjunction with your construction loan, you should ask your loan officer about the FHA and/or VA One-Time Close construction loan programs.
These loans feature a single mortgage for the construction phase and the mortgage portion of the transaction–unlike other construction loans that require two loans, two applications, two closing dates, etc.
Myths about the construction loan process include who can buy–even a first-time home buyer can be approved for a One-Time close mortgage if they qualify financially.
Construction loan myths also include the notion that you don’t need an inspection or appraisal since the property will be brand new. But FHA loan rules (VA loan rules, too) require the new construction property to meet local building code requirements as well as minimum safety and habitability standards. The lender will need certification documenting this, hence the need for an official review of the property.
Building a home from the ground up means you get a say in the selection of the design, materials, and approach to the project. It pays not to be in a hurry when building a home; construction loans are excellent for those who do not need to move in as soon as possible.
Some advice about getting approved for a One-Time Close construction mortgage? Plan your project carefully–don’t change careers ahead of your home loan application or make other radical changes to your credit, income, or the stability of your future income.
You want the lender to have an easy time determining your ability to afford and pay for the new loan, and the lender must as part of all that insure your income and employment are stable and reliable.
When budgeting and saving for this loan, remember that most lenders won’t approve the borrower acting as their own contractor; you’ll need to be prepared to make the minimum down payment, pay for closing costs, and anticipate things like pest control measures and other expenses.
We mention the contractor issue because a small percentage of borrowers might (mistakenly) plan on applying for a construction loan, acting as their own contractor, and pocketing any savings in cash.
But One-Time Close mortgages, like other government-backed loans, don’t permit cash payments to the borrower at closing time except in the form of genuine refunds of things paid for upfront but later financed into the mortgage. You won’t be able to cut corners and take the difference out in cash. That’s a bad idea at the best of times, but some do feel tempted before they learn the rules of home loans.
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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