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FHA One-Time Close construction loans have their own rules for interest rates and down payment requirements. Do you know what they are? It’s good to understand some basics when preparing to apply for this type of loan.

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FHA One-Time Close Rules for Down Payments and Interest Rates

FHA One-Time Close Rules for Down Payments and Interest Rates
February 6, 2018 - FHA One-Time Close construction loans have their own rules for interest rates and down payment requirements. Do you know what they are? It’s good to understand some basics when preparing to apply for this type of loan. FHA construction loans can have important differences from the kinds of loans used to buy existing construction properties.

The FHA loan handbook, HUD 4000.1 explains that FHA One-Time Close construction loans (often referred to as construction-to-permanent mortgages) are home loans that are designed to streamline the construction loan process from two loans (the money for the construction and the money for the mortgage itself) into a single application and loan closing date.

FHA One-Time Close Construction Loan Down Payments

HUD 4000.1 says One-Time Close mortgages can have down payment sources that don't apply or are not allowed for other types of home loans.

The FHA loan handbook says of One-Time Close construction loans, "The Borrower may utilize any cash investment in the Acquisition Cost of the Property to satisfy the Minimum Required Investment (MRI)." The MRI is another term for the borrower’s required down payment. That down payment minimum for One Time Close and other FHA forward mortgages is 3.5% of the adjusted price of the home.

For down payments on FHA home loans, your participating FHA lender will be required to "document the cash investment was from an acceptable source of funds in accordance with TOTAL or manual underwriting requirements as applicable" and your lender will need you to file supporting documentation which includes the cost of the purchase.

The borrower must be able to show in writing when the land was bought, and whether there were borrower-paid extras given "over and above the contract specifications and any out-of- pocket expenses not included in the builder’s price to build".

One-Time Close Construction Loan Interest Rates

FHA home loan interest rate guidelines apply for these types of loans, but there are some important differences. When it comes to interest rates, the lender and the borrower must negotiate the rate. This is true of FHA One-Time Close mortgages, but some borrowers don't know that there is an Adjustable Rate option for the construction phase of the loan.

"During the construction period, the interest rate may be variable. The Mortgagee and the Borrower must enter into an agreement that:
  • documents the range in which the interest rate may float during construction;
  • documents the point of interest rate lock-in;
  • specifies that the permanent Mortgage will not exceed a specific maximum interest rate;
  • and permits the Borrower to lock in at a lower rate, if available and they have not already locked in a rate."

Learn More About FHA One-Time Close Construction Loans

Your FHA lender will explain the interest rate lock-in requirements for that financial institution; state law and other factors may apply in addition to lender standards and FHA loan minimums.
We have done extensive research on FHA One-Time Close mortgages and have compiled a list of licensed lenders for most states. These are qualified mortgage loan officers who work for lenders that know the product well.

Each company has supplied us the guidelines for their product. If you are interested in being contacted by one licensed lender in your area, please respond to the below questions to save time. All information is treated confidentially.

Your response to onetimeclose@fha.com authorizes FHA.com to share your personal information with a licensed mortgage lender in your area to contact you.

Please note that the FHA One-Time Close Construction Program only allows for single family dwellings (1 unit) – and NOT for multifamily units (no duplexes, triplexes or fourplexes).

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 credit score and/or the Co-borrower’s credit score, if known. 620 is the minimum qualifying credit score for this product.

4. Are you or your spouse (Co-borrower) eligible veterans?

5. If either of you are eligible veteran’s, the down payment is $0 up to the maximum VA lending limit for your county. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.


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