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Build On Your Own Land: The FHA One-Time Close Construction Loan

October 16, 2019

Build on your own land FHA One Time Close Construction Loan

The FHA One-Time Close construction loan allows a borrower to build a home from the ground up, including loan applicants who want to build on their own land with an FHA construction loan.

What do borrowers need to know about the FHA One-Time Close loan? To begin, this type of FHA home loan is available to all qualified borrowers who want to build approved properties; the first-time home buyer is just as welcome to apply for an FHA construction loan as an experienced borrower.

For this type of loan, the time you would spend house hunting will be spent contracting with a builder (who must be a licensed general contractor), working with floor plans, and planning the construction of the home rather than going out to search for an existing property.

This may sound better than house hunting to some, but it’s wise to build in extra time into your planning stages to accommodate the time requirements needed.

One-Time Close Construction Loans: Property Eligibility

As mentioned above, FHA construction loans permit a borrower to apply for a home loan to build on land the applicant already owns.

But there’s a caveat; in general, you may be required to own the land for six months or less on the date of the FHA case number is assigned.

Those who do not have land “must be purchasing the land at the closing of the construction loan” according to the FHA loan single-family handbook, HUD 4000.1.

Calculating Maximum Mortgage Amount

How does your lender figure out the maximum mortgage amount for an FHA One-Time Close loan? HUD 4000.1 tells the lender how to proceed.

“The maximum mortgage amount is calculated using the appropriate purchase Loan-to- Value (LTV) percentage of the lesser of the appraised value or the documented Acquisition Cost.”

The documented Acquisition Cost of the Property includes:

  • The price to build (provided by the builder);
  • Borrower-paid extras “over and above the contract specifications” and/or certain out-of-pocket costs that were not included in the builder’s price to build;
  • Price of the land (if already owned by the applicant) OR;
  • Documentation of a gift of land, OR;
  • The appraised value of the land;
  • Closing costs for “any interim financing of the land”.

If the land to build the home on is being purchased from the builder, the cost must be included as part of the calculation made to figure out the builder’s total costs.

In cases where the home to be built is Manufactured Housing, HUD 4000.1 states, “the builder’s price to build includes the sum of the cost of the unit(s) and all on-site installation costs.”

It should be noted here that not all participating FHA lenders will permit loans to construct manufactured housing; talk to a loan officer about your specific needs for the loan to make sure the type of home you wish to buy is offered at that financial institution.

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. This type of loan allows for you to finance the purchase of the land along with the construction of the home. You can also use land that you own free and clear or has an existing mortgage.

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 to one licensed construction lender in your area, please send responses to the questions below. All information is treated confidentially.

OneTimeClose.com 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). You CANNOT act as your own general contractor (Builder) / not available in all States.

In addition, this is a partial list of the following homes/building styles that are not allowed under these programs:  Kit Homes, Barndominiums, Log Cabin or Bamboo Homes, Shipping Container Homes, Dome Homes, Bermed Earth-Sheltered Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes, Tiny Homes, Carriage Houses, Accessory Dwelling Units and A-Framed Homes.

Your email to info@onetimeclose.com authorizes Onetimeclose.com to share your personal information with a mortgage construction 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 $1,000,000 and review higher loan amounts on a case by case basis.   If not an eligible veteran, 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

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 FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.

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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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