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

March 12, 2021

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.

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 their own contractor, but only she is “a licensed general contractor” according to the FHA official site.  * While the FHA guidelines may allow this, mortgage companies use the FHA standards as the baseline and then can add additional requirements which is known as "Overlays".  Due to the many liabilities that arise out of a licensed general contractor acting as their own contractor, all known FHA One-Time Close Lenders at this time will not allow a borrower to act as their own contractor. 

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.


 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), 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 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 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 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:  Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.
 
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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 $750,000 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.