February 20, 2020

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FHA One-Time Close Construction Mortgage Basics

FHA One-Time Close Construction Mortgage Basics

FHA home loan options are not limited to existing construction housing. FHA borrowers, including first-time home buyers, have the option to apply for a FHA One-Time Close Construction loan. This allows any borrower who financially qualifies to have a home built for them from the ground up.

FHA One-Time Close loans have some basic requirements; some of these are FHA loan program rules, but others are unique to an individual lender. For example, FHA One-Time Close mortgages, also known as FHA OTC loans, technically allow a borrower to build a home with more than one unit.

But many lenders may restrict these mortgages to single-unit properties. Or they may not permit the financing of certain closing costs, require higher FICO scores, etc. Much depends on the rules of the specific financial institution, so you will need to shop around for the right FHA lender for your needs.

FHA One Time Close mortgages also technically allow the borrower to act as her own contractor. Here’s what HUD 4000.1 has to say on that issue:

“The Borrower must have contracted with a builder to construct the improvements. The builder must be a licensed general contractor. The Borrower may act as the general contractor, only if the Borrower is also a licensed general contractor. “

However, lender requirements often state that the borrower is NOT permitted to do this, so if you want to act as your own contractor you must shop around for a participating FHA lender who will permit it.

There are other caveats to this; HUD 4000.1 instructs the lender, “The Borrower may not receive cash back from the additional equity in the Property, but the Borrower may replenish their own cash expenditures for any Borrower-paid extras over and above the contract specifications and any out-of-pocket expenses not included in the builder’s price. The Mortgagee must obtain an itemization of the extras and expenses and the cost of each item.”

Reading between the lines, some borrowers may interpret this as a set of rules designed to prevent cash back to the borrower except in the form of refunds, the same way as other FHA forward mortgage transactions are designed to prevent cash back at closing time.

An FHA One-Time Close Construction Loan can be an excellent investment if the borrower is not in a hurry to get the construction project finished and can invest the extra funds required to hire an architect and pay for other construction loan expenses.

It may be true that a construction loan costs more than the purchase of an existing construction home, but the results are worth it for those who want a home built to suit rather than trying to find just the right existing construction home.

Learn More About FHA/ VA / USDA One-Time Close / Single-Close Mortgages

We have done extensive research on One-Time Close / Single-Close mortgage loans and spoke directly to the 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.

Your response to onetimeclose@fhanewsblog.com authorizes us to share your personal information with a licensed mortgage lender in your area to contact you.

Please note that the One-Time Close / Single-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?  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.
Joe Wallace - Staff Writer

By Joe Wallace

May 20, 2019

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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About FHANewsBlog.com
FHANewsBlog.com was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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