FHA One-Time Close Construction Loan Rules to Know

March 9, 2021

FHA One-Time Close construction loans are different than other FHA new purchase loans. There are some basic differences between “new construction” and “existing construction” FHA loans. Before we launch into those differences, it’s important to point out one very important aspect about this program.

The basic FHA One-Time Close guidelines include provisions for loan features that the lender can offer; however many lenders choose not to offer all One-Time Close loan options. For example, you may notice that FHA loan rules permit One-Time Close Construction Loans for manufactured housing that meets program requirements.

The lender can choose to offer such loans or not, and you may find that lenders don’t allow these construction loans for property that isn’t considered “stick-built”. You should talk to your loan officer to discuss the type of property you want to finance with an FHA One-Time Close mortgage to see if that financial institution offers that type of option.

FHA One-Time Close Program Guidelines You Should Know

When you apply for an FHA loan to buy existing construction homes (defined as a property which has been built for at least a year or more with at least one owner) the appraisal process is a condition of loan approval to insure the property meets minimum FHA standards and to establish the fair market value of the home.

FHA One-Time Close construction loans (also called FHA construction-to-permanent loans) an inspection is required to insure the property meets minimum standards. HUD 4000.1 explains what the inspection requirements are for New Construction properties broken down into the nature of the property:

For proposed construction loans, the lender must obtain one of the following:

• Copies of the building permit and Certificate of Occupancy (or equivalent).
• Three inspections (footing, framing and final) performed by an FHA Roster Inspector on form HUD-92051, Compliance Inspection Report (for Modular Housing, footing and final only).
• Three inspections (footing, framing and final) performed by the local authority with jurisdiction over the Property (for Modular Housing, footing and final only).
• A 10-year warranty and final inspection issued by the local authority with jurisdiction over the Property or an FHA Roster Inspector.

For Under Construction properties, the lender is required to acquire one of the following:

• Copies of the building permit and Certificate of Occupancy (or equivalent).
• A 10-year warranty and final inspection issued by the local authority with jurisdiction over the Property or an FHA Roster Inspector.

The Ten Year Builder’s Warranty

A 10-year warranty is one of the items mentioned in the lists above-these warranties, where required, are a condition of loan approval for FHA construction-to-permanent loans (AKA FHA One-Time Close construction loans). A warranty is required of new construction FHA loans, but not for the purchase of existing construction properties.

HUD 4000.1 defines this ten-year warranty as follows:

"Ten-year warranty refers to an agreement between the Borrower and a plan issuer which contains warranties regarding the construction and structural integrity of the Borrower’s dwelling securing the FHA-insured Mortgage. The plan must be a HUD-accepted insured ten-year protection plan."


 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.
 
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.