December 2, 2021

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First-Time Borrowers Can Build a Home Instead of Buying One

Build on your own lot. Construction loan basics

Even a first-time buyer dreams about having a house built especially for them from the ground up. Some taking their house-hunting journey for the first time are surprised to learn that their options include the ability to build a home on your own lot using a One-Time Close construction loan.

One-Time Close construction loans, which feature only a single loan application and a single closing date, are offered as conventional mortgages, but also as VA and FHA construction loans.

What should first-time home buyers should know about construction loans before committing? Don’t worry, these things won’t discourage you from getting the loan. But knowing some issues in advance may change how you prepare for your new home loan.

Down Payments

When building your home on your own land, a down payment is required in most cases except VA mortgages, which allow a zero-down option for typical mortgages. When construction loans are involved, be prepared to make a down payment.

That amount comes to 3.5% down for FHA mortgages with qualifying FICO scores and the down payment requirement varies for conventional loans based on a number of factors.

VA One-Time Close borrowers sometimes choose to make a down payment even though they don’t have to; the VA loan program offers a lower VA loan funding fee in exchange for a down payment.

Borrowers often choose FHA One-Time Close mortgages for the low 3.5% downpayment. Some who own their own loan may be able to negotiate with the lender to use land equity as the down payment. But some borrowers may try to meet the down payment requirement by using a down payment grant. 

These grants–normally accepted by lenders–are not acceptable to many lenders offering construction loans. You will need to plan and save up your down payment during the planning stages of your new loan.

Construction Loan Planning

Having a home built from the ground up means choosing architectural plans and hiring approved contractors to perform the construction work. First-time buyers need to know that most lenders will not allow you to act as your own builder or contractor. You won’t be allowed to be paid for the labor of your construction loan by naming yourself or other family members as your builder. A third party will be required.

It is not advisable to be in any kind of hurry with the construction process. Construction projects require proper permits, and that process may take longer in crowded housing markets.

You’ll need compliance inspections where applicable, pest control measures may be needed, and you may also have issues like flood zone determination before moving ahead with a construction project. Assume you will need extra time for delays, bad weather issues, and related problems.

Credit Scores Are Very Important

Ask your lender to tell you what the ideal FICO scores are for maximum financing on your construction loan. But do NOT wait until talking to a lender to start working on your credit. You should work on your credit long before you start filling out loan paperwork—lenders want to see a solid record of on-time payments on all financial obligations at least 12 months before the application for the mortgage.

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 4, 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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