December 2, 2021

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Construction Loan Options: Comparing One-Time Close Loans

Build on your own lot. Construction loan basics

Do you dream of building a home? There are affordable options for those who want to build on their own lot or buy land in conjunction with a One-Time Close (OTC) construction loan. One-Time Close mortgages feature a single loan application and a single closing date. Compare that to construction loans that make you apply and get approved twice–once for the construction costs and once for the purchase of the property.

Your construction loan options include VA, FHA, and USDA mortgages. One type of loan might be more suitable to certain borrowers than others, but fortunately, there are multiple choices you can make to get the right loan for you.

FHA One-Time Close Construction Loans

The FHA One-Time Close mortgage is a good choice for those who want more flexible credit requirements and a lower down payment than for conventional construction mortgages.

FHA construction loans have the same low down payment requirement that other FHA home loans do–3.5% down, offered to applicants with qualifying FICO scores. On paper, FHA loan requirements state FICO scores 580 or above are eligible for maximum financing, but for construction loans, you should expect lenders to require a higher FICO score.

In general, FHA loans feature more borrower-friendly FICO score requirements than some conventional mortgages. Compare FICO score guidelines between FHA and conventional lenders to get a better idea of how an FHA mortgage can help. You should also compare FICO score requirements among participating FHA lenders as these will vary.

FHA loans do not permit prepayment penalties. FHA loans, including construction loans, have NO first-time borrower requirement. You DO NOT have to be a first-time home buyer.

FHA loans permit the borrower to start making mortgage payments AFTER the construction phase of the loan has ended. Ask a loan officer how this will affect your mortgage payments as the loan is still required to be fully paid off within the original loan term.

FHA construction loans are subject to county loan limits for that area, and there is an occupancy requirement that is a condition of loan approval.

Occupancy by at least one person obligated on the mortgage is required within a reasonable time after the construction project is finished. These loans are for owner-occupied residences onlyl.

You must hire an approved contractor for OTC loans. Don’t expect to perform your own labor or hire friends and family–this is not allowed.

VA One-Time Close Construction Loans

VA One-Time Close construction loans have incredible advantages over other mortgages, but they are only available to currently serving active duty, veterans, members of the National Guard and Reserve, and qualifying surviving spouses of those who have died as a result of military service. These loans are not offered to the general public, but there is a large number of Americans who qualify for these loans.

VA construction loan terms include the option of no down payment. Compared to FHA OTC mortgages, there is the added benefit of no VA loan limit for those who have 100% VA loan entitlement. Ask a lender to help you see how much you could qualify for to build your dream home.

VA construction loans differ from FHA equivalants in another important way–VA mortgages have no VA-imposed FICO score requirements. Lender’s standards will apply and those standards will vary depending on the lender. It’s good to shop around.

No pre-payment penalties are allowed with VA mortgages.

These loans feature similar occupancy requirements to FHA construction loans, but with a major difference; qualifying immediate family members (spouses and dependents) can occupy the property in the borrower’s place and still meet the occupancy rules.

Approved contractors must be used for VA OTC projects. No self-builds, no family-and-friends help, etc.

USDA One-Time Close Mortgages

USDA mortgages include a construction loan option. These loans are intended specifically for low to moderate-income borrowers–this loan program is sometimes confused with the FHA loan program but FHA loans are not need-based.

USDA construction loans are restricted to USDA-approved rural areas with populations up to 35 thousand in 2021. Those limits are subject to change, so you will need to ask the lender what currently applies.

The USDA official site states USDA maximum loan amounts for OTC loans are determined by appraisals. Borrowers may qualify to have mortgage payments postponed during construction up to one year.

USDA loan applicants must use approved contractors to perform the construction labor.

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.
Bruce Reichstein - FHA News Author

By Bruce Reichstein

May 27, 2021

Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.

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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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