December 2, 2021

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FHA One Time Close Construction Loans Versus FHA Rehabilitation Mortgages

There are FHA home loans you can apply for that allow you to build or renovate existing construction. One type of home loan–one that lets you build instead of buying existing construction–is the FHA One-Time Close (OTC) construction loan.

An alternative, known as the FHA 203(k) Rehabilitation mortgage and it is used to repair or renovate a home.

One-Time Close construction loans and FHA 203(k) Rehab loans are similar–these two loans need approved builders to do the work, and they both require a minimum down payment unless you choose a VA or USDA OTC loan instead.

One-Time Close Down Payment Rules

FHA One-Time Close loans have a 3.5% down requirement for those with FICO scores within the qualifying range. Borrowers with lower credit scores may be required to put 10% down.

USDA and VA versions of the One Time Close loan have different rules and allow zero down transactions for qualifying applicants.

Both types of loan–OTC and the FHA 203(k) Rehab loan–can be used for major structural work. There is a list of approved projects for the FHA 203(k) loan.

Both types restrict cash out for the borrower–all funds used as a draw or paid out of escrow must be for specific expenses directly related to the project. Any money going direct to the borrower must be in the form of a refund for items paid for up front but later financed into the loan.

For OTC and 203(k) loans the borrower and lender negotiate the interest rate, establish a timeline for project completion, and for both loans the borrower may be required to live elsewhere while the work is being completed depending on circumstances.

How These Two Loans Differ

There are important differences between these two loan types. For example, the FHA One-Time Close mortgage does not feature a refinance loan option. Yes, you can refinance an OTC, but there is no dedicated One Time Close refinance loan package. Compare that to the 203(k) which does allow you to buy or refinance.

The 203(k) mortgage or refinance loan can be offered in a “limited” version with a smaller amount of money, no minimum repair cost, but there are restrictions on the type of work you can do with the limited 203(k). This is not true of the One Time Close loan.

203(k) mortgages may allow you to apply for down payment assistance for your loan but this is NOT true of OTC loans. You will find that participating lenders offering One-Time Close mortgages don’t allow borrowers to use down payment assistance programs to build a home.

For both types of loan your down payment funds must be sourced properly, but for One Time Close mortgages, some borrowers may have the option to avoid the down payment altogether. This is true in cases where the applicant is using land with equity to use as the construction site of the home.

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 veterans, 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

March 11, 2021

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 for (8) years and is currently the Associate Editor for

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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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