Why would borrowers choose to build a home on their own land using an FHA One-Time Close construction loan (which requires a down payment of 3.5%, minimum) instead of a no-money-down USDA home loan?
There are several reasons why an FHA mortgage might be the better choice depending on circumstances, even with a required minimum down payment. That down payment is far less than some conventional loans require.
USDA Mortgage or FHA Home Loan?
USDA construction loans offer an advantage to eligible borrowers thanks to their zero down payment requirement. But a USDA mortgage is need-based, and these loans (even construction loans) have a household income cap.
USDA loan rules state that in some cases, borrowers who have assets higher than the USDA limit “…may be required to use a portion of those assets” and that may translate into something different than a no-money-out-of-pocket loan or a zero down mortgage.
FHA home loans, on the other hand, have no need-based guidelines. All borrowers who apply must financially qualify, but there is no exclusion for those who “earn too much”. FHA loans are for all financially qualified borrowers.
FHA One-Time Close loans feature minimum down payment of 3.5% of the adjusted value of the home–that is the exact same requirement as for all other FHA forward mortgages.
The down payment requirement may be higher in some cases–usually when certain factors such as a non-occupying co-borower, or an applicant who does not have credit scores high enough to qualify for the lowest down payment.
FHA mortgages have one basic restriction on where a home may be located; you can only use an FHA mortgage to buy or build a home in the United States or its’ territories.
Exceptions do apply in the case of certain flood zones or other known natural disaster areas that are identified as “no approval” zones in FHA loan rules. The lender, state law, and other regulations may also have a say in what is possible to buy in any given housing market.
USDA single-family home loans, on the other hand, do have more restrictions on where the home may be located–generally these loans are intended for those who buy in certain rural areas, though the definition of “rural” may be in some cases more loosely applied.
Ask your loan officer about FHA home loans and how they can help you purchase a home or refinance an existing mortgage.
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.