The FHA One-Time Close construction loan is meant for borrowers (first-time home buyers or otherwise) who would rather build a house on their own lot instead of buying an existing property.
The beauty of the FHA One-Time Close loan is that you can be a first-time home buyer and make the same low down payment of 3.5% as any other FHA borrower.
But there are some pitfalls to avoid with FHA One-Time Close mortgages; these are the same mistakes that are made with other home loan transactions, but with a construction loan you may find that more attention is paid to these issues due to the more complex nature of the loan.
Avoid Changes In Your Credit
Changes to your financial status before loan closing means things like adding more debt to your debt-to-income ratio, applying for other credit in the meantime, and similar issues. Missed payments, late payments, and similar problems are also an issue here.
If your debt-to-income ratio isn’t ideal, the addition of new credit will definitely affect your potential to close. FHA loan rules, lender standards, and other requirements all may factor into the decision on how to handles such contingencies.
The best advice here is not to apply for a new credit card or open other types of credit accounts even if you feel certain your closing date is set in stone. Your closing date is subject to change at all times due to lender needs, unforeseen problems, natural disasters, or other variables.
Down Payment Issues
Another mistake to avoid is altering the source of your down payment funds. The FHA loan handbook, HUD 4000.1, instructs the lender that down payments may only come from approved sources and your lender is required to verify all sources of down payment funds.
FHA One-Time Close loan rules will require the lender to verify the source of all down payment funds, even those that were gift funds provided to the borrower.
This is true even after loan approval-if your down payment source changes or you decide to add more funds. the lender is required to review the new source.
The lender needs to ensure these funds are not from a payday loan, or any gift that does not meet FHA and lender standards for gift funds (including a requirement for NO expectations of repayment), and is not sourced from a party that is not permitted to contribute.
If you MUST change the source of your down payment funds, you should take great care to document it meticulously.
In cases where a borrower chooses to alter how One-Time Close down payment funds are paid, you will need to expect a delay depending on circumstances as the lender will have to take the extra time to verify the change.
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 firstname.lastname@example.org authorizes us to share your personal information with a licensed mortgage lender that is familiar with your area to contact you.
- Send your first and last name, e-mail address, and good contact number.
- Tell us the city and state of the proposed property.
- 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.
- 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.