One-Time Close (OTC) loans allow borrowers to build a house on their own lot instead of having to choose from existing properties. You can be a first-time home buyer and still be approved for a One-Time Close construction loan, also known as Single-Close loans or Single-Close construction mortgages.
If you have never examined your options on the real estate market, it’s easy to assume you aren’t financially qualified for a construction loan. After all, that sounds like a very big undertaking, doesn’t it? Having a house built for you?
That may sound like something that other people might qualify for, but the fact is that FHA and VA OTC loans have the same requirements as any other FHA or VA mortgage. These loans are designed to be more affordable, and that includes the construction loan option.
Your lender might require slightly higher FICO scores depending on the size and scope of your construction project, however, there are no unusual requirements to qualify for this loan overall. Typical FICO score ranges are required, not extrordinary ones.
Different Types Of OTC Loans Open To You
There are VA, FHA, and even USDA One-Time Close loans, and no matter which loan program you choose, you have the advantage of a government-backed mortgage with a lower down payment requirement–just 3.5% minimum and 10% down for those who have scores that fall into a lower FICO range.
Because construction loans may require extra planning, applications for permits, and other processes that are not required for existing construction loans, be sure to add in plenty of extra time to apply for permits when the time comes, to research plans and home designs.
Your OTC loan money pays for the construction phase of the project, but you will encounter expenses along the way that are not covered by the loan. Closing costs you must pay in cash, followup or compliance inspections, such as any required follow-up inspections, flood zone determination, and other expenses should be anticipated and planned for.
You can ask your loan officer about what to expect and how much time you should spend saving based on a rough estimate of the expenses you’ll pay in cash. There are other questions to ask, too.
For example, what is the typical processing time for permit applications in that housing market? Is extra time needed to get these permits? In some housing markets, getting a permit can take many months longer than in other areas.
Find out what the typical completion times for these projects, how long you should expect to remain in your current home, etc. Some borrowers may be on the fence about a construction loan, wanting the benefits but not sure about the cost or the time frames involved.
Be sure to ask the lender to show you a side-by-side breakdown of the OTC loan compared to an existing construction mortgage.
This can be helpful if you don’t fully understand how the construction loan process works and need to see how quickly (or not) you can get into a new home.
Don’t be in a hurry with a construction loan. If you need to move into a home faster than the time it takes to build one, consider other options such as the FHA 203(b) home loan, an FHA Rehab loan for fixer-uppers, or even an FHA condo loan.
Learn More About FHA/ VA / USDA One-Time Close / Single-Close Mortgages
We have done extensive research on 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 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 firstname.lastname@example.org 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).
- Send your first and last name, e-mail address, and contact telephone number to email@example.com
- 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 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.