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Planning Your One-Time Close Construction Loan

June 18, 2021

Construction Loans For First-Time Home Buyers

Some FHA loan applicants do not realize they have the ability to apply for a One-Time Close mortgage that lets the borrower build a home on their own lot instead of buying an existing construction home.

The FHA One-Time Close (OTC) construction loan, like its’ VA construction loan counterpart, is a loan backed by the government that allows the borrower to apply for a single mortgage loan to cover both the costs of construction of a home from the ground up and the purchase of the home. 

This is offered as an alternative to construction loans that require two loan applications (one for construction, one for the completed home) and two closing dates.

OTC Loans Have The Same Down Payment Requirements As Other FHA Loans

The One-Time Close loan avoids this in favor of one loan, one closing date, and the FHA version has the same down payment requirements as any other FHA loan including mobile home and condo unit loans. That minimum is 3.5%, though borrowers who don’t meet certain FICO score requirements (FHA and lender standards apply) may be required to make a higher down payment (the same as with other FHA loans).

How do you prepare for an FHA One-Time Close loan? The process is similar to any other mortgage, but with some extra consideration along the way for the time it may take to secure architectural plans, building permits, and contractors.

Skip Getting New Credit Cards, Work On Your Existing Credit Accounts

Before you apply for a One-Time Close construction loan, you’ll need time to save and plan your loan. You will also need time to start working on your credit using credit monitoring, reducing your card balances, and avoiding new debt.

Your credit scores and your credit history both play a very important role in loan approval. Don’t come to the application process with new credit accounts opened in the last year. And don’t apply for your loan until you have 12 months or more of on-time payments for all financial obligations for better results with home loan application approval.

Get Ready For Your Down Payment Early

Saving early helps in many ways. The bigger down payment you make on your dream home, the less the loan will cost over time. That said, some borrowers need to save on up-front costs and can only put the minimum amount down. 

For some types of home loan, a borrower may consider getting the help of a local down payment assistance program but for construction loans some lenders may not permit down payment assistance–ask before you plan on money coming from other sources than your own savings. You will be glad you did.

You may also have access to state or local tax breaks or other incentives as a first-time home buyer or a borrower who has not owned property in a while. Investigate your local options in the planning stages to see where you can save money or get financial assistance (where applicable).

Learn How Much Home Loan You Can Realistically Afford

Try using an online mortgage calculator for an estimate of your monthly payments (including property taxes, mortgage insurance premiums, and other expenses that may affect your mortgage amount.) The online calculator is a helpful budgeting tool, but don’t expect accurate-to-the-dollar amounts. This is an estimate for planning purposes only.

Want More Information About One-Time Close Loans?

One-Time Close Loans are available for FHAVA 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 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 (one) mortgage construction lender licensed in your area to contact you. Your credit report will NOT be pulled due to sending this and we do not ask for Social Security numbers.

  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.

Or go to our site and Request Additional Information.

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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