January 28, 2020

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Don’t Make These Mistakes With Your One-Time Close Construction Loan

Don't Make These Mistakes With Your One-Time Close Construction Loan

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 VA, FHA, Or USDA One-Time Close / Single-Close Construction Loans Today

We have done extensive research on FHA, VA and USDA 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 with 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 so, 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.

Bruce Reichstein - Staff Writer

By Bruce Reichstein

December 4, 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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