July 5, 2020

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Planning Your One-Time Close Construction Loan

Construction Loans For First-Time Home Buyers

Some FHA loan applicants do not realize they have the ability to apply for a One-Time Close mortgage that lets the borrower build a home on their own lot instead of buying an existing construction home.

The FHA One-Time Close (OTC) construction loan, like its’ VA construction loan counterpart, is a loan backed by the government that allows the borrower to apply for a single mortgage loan to cover both the costs of construction of a home from the ground up and the purchase of the home. 

This is offered as an alternative to construction loans that require two loan applications (one for construction, one for the completed home) and two closing dates.

OTC Loans Have The Same Down Payment Requirements As Other FHA Loans

The One-Time Close loan avoids this in favor of one loan, one closing date, and the FHA version has the same down payment requirements as any other FHA loan including mobile home and condo unit loans. That minimum is 3.5%, though borrowers who don’t meet certain FICO score requirements (FHA and lender standards apply) may be required to make a higher down payment (the same as with other FHA loans).

How do you prepare for an FHA One-Time Close loan? The process is similar to any other mortgage, but with some extra consideration along the way for the time it may take to secure architectural plans, building permits, and contractors.

Skip Getting New Credit Cards, Work On Your Existing Credit Accounts

Before you apply for a One-Time Close construction loan, you’ll need time to save and plan your loan. You will also need time to start working on your credit using credit monitoring, reducing your card balances, and avoiding new debt.

Your credit scores and your credit history both play a very important role in loan approval. Don’t come to the application process with new credit accounts opened in the last year. And don’t apply for your loan until you have 12 months or more of on-time payments for all financial obligations for better results with home loan application approval.

Get Ready For Your Down Payment Early

Saving early helps in many ways. The bigger down payment you make on your dream home, the less the loan will cost over time. That said, some borrowers need to save on up-front costs and can only put the minimum amount down. 

For some types of home loan, a borrower may consider getting the help of a local down payment assistance program but for construction loans some lenders may not permit down payment assistance–ask before you plan on money coming from other sources than your own savings. You will be glad you did.

You may also have access to state or local tax breaks or other incentives as a first-time home buyer or a borrower who has not owned property in a while. Investigate your local options in the planning stages to see where you can save money or get financial assistance (where applicable).

Learn How Much Home Loan You Can Realistically Afford

Try using an online mortgage calculator for an estimate of your monthly payments (including property taxes, mortgage insurance premiums, and other expenses that may affect your mortgage amount.) The online calculator is a helpful budgeting tool, but don’t expect accurate-to-the-dollar amounts. This is an estimate for planning purposes only.

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  onetimeclose@fhanewsblog.com authorizes us to share your personal information with a licensed mortgage lender that is familiar with your area to contact you.

  1. Send your first and last name, e-mail address, and good contact number.
  2. Tell us the city and state of the proposed property.
  3. 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.
  4. 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.

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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FHANewsBlog.com is privately funded and is not a government agency.

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