FHA One-Time Close Construction Loan Basics

March 3, 2019

There are FHA home loans for “existing construction” homes, classified as properties that have had at least one owner, and FHA construction loans that allow a qualified borrower to have a home built for them from the ground up.

HUD 4000.1, the FHA loan handbook, explains these construction loans, known as construction-to-permanent or One-Time Close mortgages, may be used to finance “the purchase of an existing one- to four-unit residence, and may also finance construction of a one- to four-unit residence through a Construction to Permanent Mortgage. Properties to be acquired through an unrecorded land contract must be treated as a purchase."

Those are the rules stated in HUD 4000.1, but some borrowers may be confused by this, having approached a participating FHA lender only to be told that particular lender “does not do FHA construction loans".

Why would this happen?

One of the side-effects of the mortgage crisis of 2008 was that some participating lenders stopped offering certain types of mortgages-they simply weren’t able to justify offering those types of loans based on the goals and abilities of the financial institution. But since 2008, as the housing market gradually recovered, more and more participating lenders began offering mortgages that weren’t available. That includes FHA mortgages for mobile homes and, yes, FHA construction loans.

Even today, some lenders won’t offer all FHA loan products. One of the first steps in getting an FHA construction loan? Finding a lender willing to work with you based on your financial goals and needs for a construction loan. There are slightly higher FICO score requirements for construction loans, and you may find that a participating lender will only allow “stick-built” housing as opposed to a construction loan for a manufactured or modular home. (Some participating lenders may offer these, depending on the housing market.)

It is important to ask for the right FHA loan product; some lenders may offer a "standard" construction loan that has two closing dates. One closing date is for the construction process, one closing date is for the permanent loan.

If you seek an FHA "One Time Close" loan which features only one closing date, the “standard” FHA construction loan (or non-FHA equivalent) is not what you’re looking for-be sure to ask the participating lender specifically about FHA construction-to-permanent / FHA One-Time Close mortgage options.

Any approved FHA construction loan will require an escrow account, inspections, and other considerations not required when you buy an existing home as-is. One such step is the FHA requirement of builder verification for an FHA construction loan project--the builder must be approved or get approved to work on the project funded by the FHA mortgage loan.

This is a typical part of the FHA construction loan process, but it’s important to give extra time for this consideration.


 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.