January 26, 2021

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FHA Construction Loan Facts: What You Need To Know

Build on your own lot. Construction loan basics

There are many options available when you are searching for a house to buy. The first set of choices often involves the type of home loan you want to apply for–believe it or not there is no one-size-fits-all mortgage. If you want to purchase a condo with an FHA mortgage, for example, there is a specific loan and procedures for that.

But what if you want to have a house built for you from the ground up? This is also an option, even for first-time home buyers.

You can apply for a conventional one-time close construction loan, but you’ll be applying for conventional loan interest rates and terms; an FHA One-Time Close construction loan has a 3.5% down payment requirement, which is lower than you may be offered on a conventional loan.

What do you need to know about construction loans?

Single-Close Construction Loans

There are two basic types of construction loan; one requires not one, but TWO applications, two separate loans, and two closing dates. The stress for the borrower here includes not knowing if the second loan credit check and application process will go differently than the approval for the first loan.

A single-close loan (also known as a One-Time Close construction loan) eliminates the two loan process, concentrating the entire transaction into one loan application and closing date. It’s a simpler process for the borrower.

FICO Score Requirements

Thers is NO higher FICO score requirement in FHA loan rules for a One-Time Close mortgage. However, lenders may require higher FICO scores than the FHA minimums.

What this means is that you should shop around more for a construction loan, comparing interest rates and down payment terms, FICO score requirements and closing costs. 

Don’t take the first lender willing to work with you at face value; shop around to see who else is making offers for the loan you want and what the FICO score requirements are.

Permits And Other Requirements

One aspect of One-Time Close loans involves the required permits, building code compliance, and other issues that will vary depending on state law, local building code, health regulations, etc.

It is crucial to ask around about how long it may take to obtain the required permits to build your home, whether there are local issues that may cause delays in getting those permits, etc.

Some crowded housing markets may take six months or longer to approve permits, depending on the state you live in and other variables. Don’t underestimate the power of the local bureaucracy to slow down your construction plans. Start early, and plan for delays. 

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.

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 by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.

FHANewsblog.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). In addition, the following homes/building styles are not allowed under these programs:  Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.

Your email to onetimeclose@fhanewsblog.com authorizes FHAnewsblog.com to share your personal information with a mortgage lender licensed in your area to contact you.

  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 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.
  4. 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 $750,000 and review higher loan amounts on a case by case basis.   If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.

Joe Wallace - Staff Writer

By Joe Wallace

May 1, 2020

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.

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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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