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

February 21, 2019

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."

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.
 
Your email to [email protected] authorizes FHA.com to share your personal information with a 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 $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.

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