January 15, 2020
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.
Location Requirements
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.
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. This type of loan allows for you to finance the purchase of the land along with the construction of the home. You can also use land that you own free and clear or has an existing mortgage.
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 to one licensed construction lender in your area, please send responses to the questions below. All information is treated confidentially.
OneTimeClose.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). You CANNOT act as your own general contractor (Builder) / not available in all States.
In addition, this is a partial list of the following homes/building styles that are not allowed under these programs: Kit Homes, Barndominiums, Log Cabin or Bamboo Homes, Shipping Container Homes, Dome Homes, Bermed Earth-Sheltered Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes, Tiny Homes, Carriage Houses, Accessory Dwelling Units and A-Framed Homes.
Your email to info@onetimeclose.com authorizes Onetimeclose.com to share your personal information with a mortgage construction lender licensed in your area to contact you.
- Send your first and last name, e-mail address, and contact telephone number.
- Tell us the city and state of the proposed property.
- 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.
- 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 $1,000,000 and review higher loan amounts on a case by case basis. If not an eligible veteran, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.
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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