December 3, 2020

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Who Should Apply For A Construction Loan?

Who should apply for a construction loan?

Who should apply for a construction loan? There are two basic types of borrowers who should consider doing so–the house hunter who wants to build a house instead of buying someone else’s, and those who want to purchase fixer-upper homes and renovate them.

The home loan for borrowers who would rather build their home on their own lot is called a One-Time Close (OTC) construction loan. It features a single loan application for both the construction of the house and the purchase of it once completed.

Non-OTC construction loans may required two separate loans–one for the construction phase and one for the purchase of the completed house. This makes the process more complicated and having a single loan is definitely an advantage for the OTC version of these mortgages.

OTC loans are offered as FHA, VA, and USDA mortgages and are offered to first-time borrowers who financially qualify as well as experienced home owners.

Those who want to buy a fixer-upper home will want to explore the FHA 203(k) Rehabilitation mortgage (also available as a refinance loan) option.

The ability to renovate the property and choose your own color scheme, fixtures and appliances, and other options makes it an attractive option for those who can afford to take a bit longer with their mortgage process to have the home brought up to spec.

Compared to conventional mortgages, government-backed construction loans have lower down payment requirements, no penalty for early payoff of the mortgage, and you may be offered a lower interest rate than for the conventional loan version.

Building or renovating a home is a big task and its easy to forget that these loans are offered to first-time borrowers. But these mortgages are intended for those trying to get into an affordable home. But there are some restrictions you may encounter depending on the lender.

For example, some participating lenders offering the FHA OTC loan have requirements that include no down payment assistance. Some lenders won’t accept a construction loan application that requires a home buyer grant or down payment help. Some lenders may have an elevated FICO score requirement in addition to these concerns.

This makes some borrowers worry that they can’t really get loan approval for an OTC loan or an FHA 203(k) Rehabilitation mortgage. But if that is your concern, call the FHA at their toll-free number directly to request a referral to a local, HUD-approved housing counselor and explain that you want a construction loan but have concerns about the credit requirements.

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. 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 authorizes 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 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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