Some borrowers, including some first-time home buyers, don’t want to buy someone else’s house. They prefer a home built to suit; real estate built from the ground up using borrower-approved plans.
This kind of home loan is available as an FHA mortgage from participating FHA lenders. It is called an FHA One-Time Close construction loan and it is an excellent alternative to buying an existing construction house.
What do you need to know about FHA One-Time Close Construction Loans?
For starters, these loans do not have a different down payment requirement than other FHA mortgages-the same low down payment options exist for borrowers with qualifying FICO scores. Your lowest possible down payment on a home built using an FHA construction loan is the same 3.5% as other FHA mortgage options. Your FICO scores and lender standards may affect the amount of the required down payment in certain cases.
FHA One-Time Close construction loans may have additional lender requirements. For example, FHA loan rules allow multi-unit homes to be built using this type of FHA mortgage, but some lenders restrict construction loans for primary residences to a single unit.
Borrowers are also technically permitted under the FHA construction loan program to do work as their own contractors; lenders may not permit this. In any case, a borrower cannot be paid from loan proceeds for labor associated with doing one’s own work on the property.
FHA constructions loans require the borrower to obtain all applicable building permits. In some housing markets this may take longer than in others so it is important to factor in extra time in your home loan process to accomplish this.
FHA One-Time Close Construction Loans have provisions in the rules for the fact that the borrower cannot take possession of the home until it has been completed; your mortgage loan payments may (depending on the terms you discuss with your lender in the legally binding agreement you will sign) begin after you take ownership of the property.
But your loan terms may remain the same-if you have a 30-year loan and your payments do not begin until almost a year later due to the construction process, you will still have to fully pay off the loan in 30 years and may experience higher mortgage payments as a result.
It is a very good idea to make “payments” on your mortgage into a savings account and put that money on your home loan as soon as possible during the construction phase. Your lender may allow you to start making payments right away and if you choose to do so you avoid this amortization issue. But you will need to discuss it fully with the lender to see what is possible.
And remember, you cannot be penalized for making larger-than-required payments on an FHA mortgage and you cannot be penalized for paying off an FHA loan early.
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.
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 by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.
FHANewsblog.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 allow
s for single family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes). In addition, the following homes/building styles are not allowed under these programs: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.
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- 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 $750,000 and review higher loan amounts on a case by case basis. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.