How do FHA One-Time Close construction loans work? These FHA mortgages are for borrowers who want to have a home built for them from the ground up rather than looking for an existing home to purchase and move into right away. Many participating FHA lenders offer these loans for “stick built” homes, which are homes built on-site (as opposed to a manufactured home which is delivered pre-built in sections and assembled).
What are the rules for this type of FHA construction loan? From the FHA/HUD official site, we learn that a One-Time Close loan is also known as a “construction to permanent” loan. “A construction to permanent mortgage combines the features of a construction loan (a short-term interim loan for financing the cost of construction) and the traditional long-term permanent residential mortgage with a single mortgage closing prior to the start of construction.”
The borrower is required to work with a licensed general contractor who is approved to work with your FHA lender. In some cases where the borrower also wants to act as the builder, FHA loan rules state, “The borrower may act as the general contractor, only if the borrower is also a licensed general contractor.”
The procedure for these one-time close type of construction loans involves the borrower purchasing the land “at the closing of the construction loan”, or the borrower is permitted to have owned the land for six months or less “at the date of case number assignment”. When closing time arrives and after FHA loan funds are “disbursed to cover the purchase of the land, the balance of the mortgage proceeds must be placed in an escrow account to be disbursed as construction progresses”.
FHA loan rules dictate that the maximum amount of the loan must be calculated using the purchase loan-to-value percentage “of the lesser of the appraised value or the documented Acquisition Cost”.
How does the lender arrive at the documented Acquisition Cost? That cost includes the following:
-The builder’s price to build;
-Borrower-paid extras over and above the contract specifications and/or out-of- pocket expenses not included in the builder’s price to build;
-Cost of the land if already owned, or with an acceptable gift documentation, the appraised value of the land may be used instead of the cost; and
-Closing costs associated with any interim financing of the land.
These loans aren’t like new purchase FHA mortgage loans for existing construction, where the loan payments become due right away. It’s understood that construction loans mean a longer span of time before the borrower can occupy and use the property. FHA loan rules for One-Time Close construction loans state, “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 Certificate of Occupancy (CO)”.
We have done extensive research on FHA One-Time Close mortgages and have compiled a list of licensed lenders for most states. These are qualified mortgage loan officers who work for lenders that know the product well.
Each company has supplied us the guidelines for their product. If you are interested in being contacted by one licensed lender in your area, please respond to the below questions to save time. All information is treated confidentially.
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Please note that the FHA One-Time Close Construction Program only allows for single family dwellings (1 unit) – and NOT for multifamily units (no duplexes, triplexes or fourplexes).
1. Send your first and last name, e-mail address, and contact telephone number.
2. Tell us the city and state of the proposed property.
3. Tell us your credit score and/or the Co-borrower’s credit score, if known. 620 is the minimum qualifying credit score for this product.
4. Are you or your spouse (Co-borrower) eligible veterans?
5. If either of you are eligible veteran’s, the down payment is $0 up to the maximum VA lending limit for your county. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.