One-Time Close Loans Compared to Other Construction Loan Options
March 4, 2024
If you want to build a house from the ground up using an FHA One-Time Close construction loan, you should research your options to ensure you’re making the right choice for the right project.
Do you need an owner-builder loan, a renovation loan, or a construction-only loan? We examine your options below.
Owner-Builder Loans
Nerdwallet describes owner-builder loans as a mortgage “for someone who plans to build their own home and act as the general contractor. Borrowers need to have building experience to qualify, and not all construction lenders offer owner-builder loans.”
One-Time Close mortgages, by comparison, don’t allow you to act as your contractor in typical cases. This is typically true whether using VA, FHA, or conventional equivalents.
Renovation Loans, Rehab Mortgages
A renovation loan is much different than a construction loan. One reason is that you need an existing structure to renovate, and you can’t build from the ground up.
Renovation loans are good for fixer-uppers. The FHA offers the 203(k) rehabilitation mortgage as its option in this area with the same low down payment requirements as other FHA mortgages.
Construction-Only Loans
These are the construction loans known as "two-close" mortgages, There are two applications, two closing dates, two sets of closing costs, and two times a borrower must qualify for the loan.
The construction loan must be paid off once the project is finished and the new loan is the borrower’s mortgage.
One-Time Close Construction Loans
Also known as construction-to-permanent loans, these FHA, VA, and conventional loans require only one credit check, application, closing day, and one set of closing costs.
At the end of the construction project the loan “converts” to a permanent mortgage. Your interest rate is locked at closing time and these loans typically feature a fixed interest rate for the mortgage.
What to Know About One-Time Close Mortgages
Ask the lender when your mortgage payments must begin. When a construction loan starts, the clock begins ticking on the mortgage, but you may only be required to make payments once the work is complete. Or you may be required to make interest-only payments during the construction phase.
Will that mean a balloon payment at the end of your mortgage? Much depends on the legally binding nature of your contract. Ask the lender about this issue before you commit and how you can take steps to manage issues like these in the earliest days of your loan.
FHA, VA, and USDA: One-Time Close Loans
Want More Information About One-Time Close Loans?
We have done extensive research on the FHA (Federal Housing Administration) and the VA (Department of Veterans Affairs) 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.
FHA.com provides information and connects consumers to qualified One-Time Close lenders 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 and VA 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, including but not limited to: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes, Dome Homes, Bermed Earth Sheltered Homes, Tiny Homes, Accessory Dwelling Units, or A-Framed Homes.
Contact Us: Send Us Your Request – Spam Safe
Please send your email request to [email protected] which authorizes FHA.com to share your personal information with one 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 per VA will allow – there are no maximum loan amounts as per VA guidelines. Most lenders will go up to $1,500,000 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.
Do you need an owner-builder loan, a renovation loan, or a construction-only loan? We examine your options below.
Owner-Builder Loans
Nerdwallet describes owner-builder loans as a mortgage “for someone who plans to build their own home and act as the general contractor. Borrowers need to have building experience to qualify, and not all construction lenders offer owner-builder loans.”
One-Time Close mortgages, by comparison, don’t allow you to act as your contractor in typical cases. This is typically true whether using VA, FHA, or conventional equivalents.
Renovation Loans, Rehab Mortgages
A renovation loan is much different than a construction loan. One reason is that you need an existing structure to renovate, and you can’t build from the ground up.
Renovation loans are good for fixer-uppers. The FHA offers the 203(k) rehabilitation mortgage as its option in this area with the same low down payment requirements as other FHA mortgages.
Construction-Only Loans
These are the construction loans known as "two-close" mortgages, There are two applications, two closing dates, two sets of closing costs, and two times a borrower must qualify for the loan.
The construction loan must be paid off once the project is finished and the new loan is the borrower’s mortgage.
One-Time Close Construction Loans
Also known as construction-to-permanent loans, these FHA, VA, and conventional loans require only one credit check, application, closing day, and one set of closing costs.
At the end of the construction project the loan “converts” to a permanent mortgage. Your interest rate is locked at closing time and these loans typically feature a fixed interest rate for the mortgage.
What to Know About One-Time Close Mortgages
Ask the lender when your mortgage payments must begin. When a construction loan starts, the clock begins ticking on the mortgage, but you may only be required to make payments once the work is complete. Or you may be required to make interest-only payments during the construction phase.
Will that mean a balloon payment at the end of your mortgage? Much depends on the legally binding nature of your contract. Ask the lender about this issue before you commit and how you can take steps to manage issues like these in the earliest days of your loan.
FHA, VA, and USDA: One-Time Close LoansWant More Information About One-Time Close Loans?
We have done extensive research on the FHA (Federal Housing Administration) and the VA (Department of Veterans Affairs) 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.
FHA.com provides information and connects consumers to qualified One-Time Close lenders 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 and VA 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, including but not limited to: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes, Dome Homes, Bermed Earth Sheltered Homes, Tiny Homes, Accessory Dwelling Units, or A-Framed Homes.
Contact Us: Send Us Your Request – Spam Safe
Please send your email request to [email protected] which authorizes FHA.com to share your personal information with one 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 per VA will allow – there are no maximum loan amounts as per VA guidelines. Most lenders will go up to $1,500,000 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.
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