August 5, 2020

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Home Loans For Building On Your Own Land

Home Loans For Building On Your Own Land

If you do not want to buy existing real estate or hire a realtor, and prefer to design your own home (or have one designed for you), a One-Time Close (OTC) construction loan is for you.

These loans are named “One-Time Close” because unlike some construction loans that require two applications, two approvals, and two closing dates, One-Time Close mortgages have ONE loan for both the construction of the home and for the mortgage itself.

These construction loans are available under several government-backed lending programs such FHA One-Time Close construction loans, VA Construction loans, and the USDA equivalent.

VA and USDA loans have no down payment requirement, but VA mortgages are not for the general public (qualifying veterans, currently serving troops, and certain surviving spouses of military members who died as a result of military service.

FHA construction loans require only a 3.5% down payment for those with qualifying FICO scores.

Conditions You Should Know

As mentioned above, VA and USDA loans have restrictions, even on construction mortgages. Those who want to build on their own lot using the more accessible FHA loan option should know that FHA OTC mortgages also have certain restrictions that include the following requirement as listed on page 445 of HUD 4000.1:

“The Borrower must be purchasing the land at the closing of the construction loan, or have owned the land for six months or less at the date of case number assignment.”

You read that correctly, borrowers have a time limit on how long they can own the land they want to build the home on. Additionally, FHA loans have a restriction on the amount of cash back to the borrower not coming in the form of refunds for money spent up front on items later financed (such as the FHA Up-Front Mortgage Insurance Premium, which must be financed entirely or paid in full in cash at closing time.)

HUD 4000.1 instructs the lender to carefully monitor certain types of payouts or “draws” depending on circumstances:

“The Mortgagee must document any Borrower-paid extras over and above the contract specifications and any out-of- pocket expenses not included in the builder’s price to build by obtaining evidence funds were derived from an acceptable source. The Mortgagee must obtain an itemization of the extras and expenses and the cost of each item.”

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 allows 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.

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

  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 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.
  4. 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.

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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FHANewsBlog.com is privately funded and is not a government agency.

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