July 17, 2017
The FHA single family loan handbook tells us that FHA home loans are for a variety of different types of purchases including existing construction, “new construction” which means a home recently built but never occupied by an owner, and “proposed construction” loans which allows the buyer to apply for a loan to fund both the construction phase and the “permanent” phase of the mortgage.
How do FHA construction loans differ from new purchase loans? Aside from the obvious (new purchase loans for existing construction move faster than construction loans do thanks to the lack of a construction phase for the existing construction loan) there are some important considerations to think about when contemplating your construction loan options.
Is An FHA Construction Loan Right For Me?
If you need to get into a new home sooner instead of later (job relocations, increases in family size situations, etc), an FHA construction loan might be tricky depending on your time constraints. But those who are able to wait out the process, (which may include a length of time devoted to finding a builder who is already FHA approved or who can become FHA approved) a construction loan might be a good option.
FHA construction loans allow the borrower more options for the new home, which is the trade-off for the extra time spent waiting for the home to be completed. The timing of your need to occupy the new home will play an important part in your decision to build.
Why Should I Get An FHA Construction Loan?
Some borrowers want to know why they should choose the FHA construction loan instead of a conventional mortgage. Lower interest rates and down payment issues aside, the FHA One-Time Close construction loan option is something to consider.
One-time close loans eliminate the need for two loans and two sets of loan approvals. Under one-time close construction loans, the borrower is approved for a single loan at the beginning of the process with no second credit check and other steps required of the two-close type construction loan.
Be Sure To Ask
Remember that not all participating lenders offer an FHA construction loan, so be sure to ask any potential lender if the FHA construction loan is possible and whether there’s a one-time close option available to you.
You may find that participating FHA lenders have higher FICO score requirements for one time close mortgages. You may find that for FHA mortgage loans in this category, borrowers with two FICO scores will have their lower FICO score used for loan approval.
FHA construction loans require more paperwork than new purchase loans due to the nature of the mortgage. Money has to be paid out to contractors, inspections and appraisals happen at different times than they might for an existing construction loan, etc. The FHA construction loan process may be more complex than a new purchase loan for a property that already exists, but for many borrowers, the extra effort is definitely worth it to get the specific type of new home desired.
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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