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FHA One-Time Close Construction Loans: Buying And Owning Land

May 10, 2022

FHA Construction Loan Rule Changes In 2021

With an FHA One-Time Close construction loan, you have the ability to build a home on your own land instead of purchasing someone else’s house.

There are two kinds of borrowers for these construction loans, those who already own land and those who do not.

Some might wonder if they are left out of the FHA construction loan option simply because they don’t own a parcel of land yet. The good news is that FHA One-Time Close loans allow you to apply for a loan to buy the land as well as build the home.

You’ll find that it may be easier to qualify for an FHA One-Time Close loan than a conventional equivalent, but keep in mind that you may have certain closing costs that aren’t applied with certain conventional mortgages.

The trade-off is getting a more liberal loan approval policy based on FICO scores and other credit factors.

But you should know that in general, FHA construction loans may have higher lender-imposed credit score requirements than for purchasing existing construction homes; expect the lender’s FICO score ranges to be higher than the FHA minimums.

FHA construction loans do have some rules to keep in mind. For any FHA home loan, the property cannot be located too close to industrial sites like wells, drilling operations, or high-pressure gas pipelines.

If you are considering purchasing land ahead of or in conjunction with an FHA mortgage of any kind, make sure the property isn’t near any of these, or in certain special flood zones or other areas such as those within a Coastal Barrier Resource System unit. 

Proximity to airports or other high-noise operations may also be problematic. It’s smart to research the land and the surrounding area before committing.

If you already own land and have sufficient land equity, you may be able to get a reduced or eliminated downpayment. Be sure to ask your lender about this option and what it takes to take advantage of it.

In either case, it’s important to know the lender’s view toward any structures that are already in place on the land prior to the construction project. You may find lenders may be wary about approving One-Time Close loans on land that requires demolition of an existing structure or structures. 

Basically you’ll want to discuss your land ownership with a loan officer and ask specifically about this issue if it applies to you. 

Be sure to ask what the policy might be if there are existing structures you don’t want to tear down as well as about those that you do want to be removed. You may find it’s best to apply for a construction loan only after the land is in the shape you want it to be when the project breaks ground. In some cases, there may be no issue, but it is best to ask long before you need that information.

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 with 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 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 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 $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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About FHANewsBlog.com
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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