January 27, 2021

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First-Time Home Buyers: Build Your New Home With A One-Time Close Construction Loan

Build on your own lot. Construction loan basics

Buying a home can be challenging for some first-time borrowers. Many newcomers to the mortgage market don’t know all their options open and in that situation it is easy to make choices that are less than fully-informed.

One-Time Close construction loans are open to any financially qualified applicant and that includes FHA borrowers who have never purchased a home before but have good FICO scores and repayment history that has no late or missed payments in the last 12 months or better.

One-Time Close loans are offered as FHA, VA, and even USDA mortgages. The FHA version is NOT need-based and features no income caps, unlike the USDA version.

VA construction loans are intended only for qualifying military members, veterans, and certain surviving spouses of military members.

For the average borrower who needs a low down payment requirement and the flexibility of a government-backed mortgage, the FHA One-Time Close construction loan is an option worth exploring.

FHA One-Time Close loans (FHA OTC) carry the same FHA minimum requirements as any other type of home loan for purchase.

The participating FHA lender will tell you that these construction loans offer the same basic down payment requirements (3.5% minimum for those with qualifying FICO scores), and the same rules for mortgage insurance, appraisals, and interest rates also apply. 

The good news about FHA construction loans? First time buyers do not have to come up with a bigger down payment just because they have never purchased a home before.

However, in all cases borrowers who do not qualify for the most competitive rates and terms (with FICO scores and other financial qualifications) may be required to make a higher down payment on that basis.

Whether your lender allows you to apply for a construction loan in such cases may be a factor–ask about the credit requirements for a construction loan compared to buying an existing home.

You should definitely give yourself more time to prepare your credit and your finances ahead of a construction loan application. Why?

Because not all housing markets operate the same–some states have crowded, busy markets and permits for construction and other requirements may take much longer.

More time to save can also be helpful–FHA construction loans require more investment than buying an existing construction property because you’ll need a floor plan, laborers to complete the home, inspections must be paid for, permits, etc.

The extra time you take to save up for these costs and others will be well worth the effort when your new home is complete.

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.

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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