April 9, 2020

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Build On Your Own Land: The FHA One-Time Close Construction Loan

Build on your own land FHA One Time Close Construction Loan

The FHA One-Time Close construction loan allows a borrower to build a home from the ground up, including loan applicants who want to build on their own land with an FHA construction loan.

What do borrowers need to know about the FHA One-Time Close loan? To begin, this type of FHA home loan is available to all qualified borrowers who want to build approved properties; the first-time home buyer is just as welcome to apply for an FHA construction loan as an experienced borrower.

For this type of loan, the time you would spend house hunting will be spent contracting with a builder (who must be a licensed general contractor), working with floor plans, and planning the construction of the home rather than going out to search for an existing property.

This may sound better than house hunting to some, but it’s wise to build in extra time into your planning stages to accommodate the time requirements needed.

One-Time Close Construction Loans: Property Eligibility

As mentioned above, FHA construction loans permit a borrower to apply for a home loan to build on land the applicant already owns.

But there’s a caveat; in general, you may be required to own the land for six months or less on the date of the FHA case number is assigned.

Those who do not have land “must be purchasing the land at the closing of the construction loan” according to the FHA loan single-family handbook, HUD 4000.1.

Calculating Maximum Mortgage Amount

How does your lender figure out the maximum mortgage amount for an FHA One-Time Close loan? HUD 4000.1 tells the lender how to proceed.

“The maximum mortgage amount is calculated using the appropriate purchase Loan-to- Value (LTV) percentage of the lesser of the appraised value or the documented Acquisition Cost.”

The documented Acquisition Cost of the Property includes:

  • The price to build (provided by the builder);
  • Borrower-paid extras “over and above the contract specifications” and/or certain out-of-pocket costs that were not included in the builder’s price to build;
  • Price of the land (if already owned by the applicant) OR;
  • Documentation of a gift of land, OR;
  • The appraised value of the land;
  • Closing costs for “any interim financing of the land”.

If the land to build the home on is being purchased from the builder, the cost must be included as part of the calculation made to figure out the builder’s total costs.

In cases where the home to be built is Manufactured Housing, HUD 4000.1 states, “the builder’s price to build includes the sum of the cost of the unit(s) and all on-site installation costs.”

It should be noted here that not all participating FHA lenders will permit loans to construct manufactured housing; talk to a loan officer about your specific needs for the loan to make sure the type of home you wish to buy is offered at that financial institution.

Learn More About FHA, VA and USDA One-Time Construction Close to Permanent / Single-Close Construction Loans

One-Time Close Loans are available with VA, FHA and USDA Mortgages.  We have relationships with several large Mortgage Banking firms who specialize in these loans which also go by the following names: 1 X Close, Single-Close Loan or OTC Loan.

Our extensive research on these programs and their guidelines allow us to educate potential home buyers who want to explore purchasing a newly constructed home versus purchasing a resale home while utilizing the same down payments for each product type.

We are constantly updated on these programs and have extensive knowledge on VA (Department of Veterans Affairs), FHA (Federal Housing Administration) and USDA (United States Department of Agriculture) One-Time Close Construction programs.

We speak directly to the licensed lenders that originate these residential loan types in most states. They 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.

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 multifamily units (no duplexes, triplexes or fourplexes).  Home types include:  Site-Built, Modular or Manufactured Homes.

In addition, the following are “NOT” allowed under these programs:
Kit Homes – Steel Framing Kits, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar or Wind Powered Homes.

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

  1. Send your first and last name, e-mail address, and good contact 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 veterans, the down payment is $0 up to the maximum amount that the debt ratio will allow – there are no maximum loan amounts as per the Department of VA. Most lenders will go up to $750,000. If not, the FHA down payment is 3.5% up to the maximum FHA Lending Limits for your county and the USDA down payment is $0 and based on maximum income.

Bruce Reichstein - FHA News Author

By Bruce Reichstein

October 16, 2019

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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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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