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What are the requirements for an FHA One-Time Close Construction Loan? These loans can be different that a standard FHA new purchase loan-there are builders to pay, inspections, and other issues that don't come with other types of mortgage loans.

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What Are the Requirements for an FHA One-Time Close Construction Loan?

What Are the Requirements for an FHA One-Time Close Construction Loan?
November 13, 2017 - There is, as the name of this type of mortgage loan implies, only one loan and only one closing date. Other types of construction loans will require two loans. One loan is for the purchase of the home (and land where applicable) with the second loan used to pay for the construction process.

That is not how the FHA One-time Close mortgage works. One-time Close loans, also referred to by lenders as a construction-to-permanent loan, have just one loan. This eliminates the need to have the borrower to be credit-qualified twice for two separate loan applications. Less risk for the borrower, an easier approval process for the lender.

The mortgage closing happens prior to any construction. That allows the purchase of the land, followed by the construction phase. This type of home loan requires an escrow account so that funds to pay for the home building process and be distributed as needed.

Borrower Requirements For FHA One-Time Close Mortgages

According to the FHA official site, “The borrower must have contracted with a builder (must be a licensed general contractor) to construct the improvements”. FHA loan rules allow a borrower to act as her own contractor, but only she is “a licensed general contractor” according to the FHA official site.

One-time Close loans require the borrower to buy the land “at the closing of the construction loan, or have owned the land for six months or less at the date of case number assignment”.

Occupancy Required

FHA One-time Close mortgages can’t be used for a home you don’t intend to occupy. FHA mortgage loans are generally intended for homes that at least one borrower on the loan will use as their primary residence.

However, it’s important to point out that FHA loan rules for this type of transaction allow the construction of a property with as many as four living units, but the borrower must live in at least one of them as his or her home address.

FICO Score Requirements

FHA One-time Close loans are subject to FHA FICO score requirements but FHA loan program minimums are not the only standards which apply. Lender requirements for this type of home loan may be higher than FHA minimums, and state/local law may also dictate how this type of transaction may proceed. Check with your loan officer to see what may be a factor in this type of home loan.