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FHA 203(k) Rehabilitation Mortgages Compared To FHA One-Time Close Mortgages

August 5, 2022

Who is eligible for an FHA Home Loan?

Some borrowers want to know if there are any differences between a one-time close construction loan and an FHA 203(k) Rehabilitation Loan.

While both of these loans have some features in common, the short answer is that they are not interchangeable and each loan has a specific purpose.

Both types have one loan application and a sinlge loan closing date.

Rehab loans and construction loans both use escrow to facilitate the payment of loan funds to contractors, and participating lenders may require the borrower to typically credit-qualify with FICO scores typically in the mid-600s for either type of mortgage.

FHA 203(k) Rehabilitation Mortgages are offered as either a refinance or a purchase loan. An FHA One-Time Close construction loan is a forward mortgage.

You would want to use an FHA Rehab loan in cases where you need to modify an existing structure. With an FHA 203(k) loan you may be allowed to use such loan funds to do major work on load-bearing walls, but these loans are typically not intended to break ground on a brand new home in the same way as a construction mortgage.

Both of these loan types have certain limits. Rehab loans can be used for owner-occupied one-to-four unit properties. FHA One-Time Close loans may allow the construction of a multi-unit home but you may find that lenders aren’t willing to underwrite projects larger than one living unit.

For both loan types the borrower is not permitted unrestricted cash back at closing time, and all payments from escrow must be for approved projects–FHA loan funds can’t be used, for example, to install luxury items like a barbecue pit or a swimming pool.

Mortgage insurance is required for these loans. Whereas a conventional construction loan may require a 20% down payment to avoid mortgage insurance, FHA construction loans require it for either 11 years or the full lifetime of the loan depending on the loan, the loan term you choose, and other variables.

You’ll want to treat these loans the same as any other type of mortgage. Do not try to obtain new credit and avoid major job changes like starting your own business–at least until after loan closing day.

If you do, you risk the lender having to pull your credit reports another time to review your credit. That is why it’s smart to wait on such issues until you have gotten beyond your closing date and possess the keys to your new 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. This type of loan allows 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 allow 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 is an eligible veteran, 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.
Joe Wallace - Staff Writer

By Joe Wallace

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 www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.

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