Is the FHA One-Time Close Construction Loan Right for You?

April 10, 2019

FHA One-Time Close construction loans are designed for those who want to have a home built for them from the ground up. Construction loan mortgages, especially FHA One-Time Close loans, are unique among mortgage lending products and have some distinct advantages.

But this type of home loan isn’t perfect for every house hunter-knowing how construction loans work can help you make a more informed choice about the type of mortgage loan that is right for you.

FHA One-Time Close Loans Are Different Than Existing Construction Loans

Construction loans are higher risk propositions for the lender and as such, lender FICO score requirements will be higher than for new purchase loans for existing properties. Be prepared for additional scrutiny on your FICO scores and loan repayment history, plus other factors the lender may deem relevant.

Construction Loan Options Vary Depending on the Nature of the Loan

When you apply for a “standard” construction loan, you have two applications, two closing dates, and all of the credit and financial scrutiny you would expect for both applications. FHA One-Time Close construction loans eliminate the need for the second loan, combining the construction portion of the loan with the mortgage portion. Escrow is used to pay contractors and buy materials.

On paper a borrower may be allowed (under FHA guidelines) to act as her or his own contractor, but you may find lenders are not willing to approve construction loans if the borrower does not hire an outside contractor.

For One-Time Close loans, your options may be restricted in certain ways such as the size of the property you can build. Many lenders offer One-Time Close loans only for stick-built housing, limit the size to a single family property (as opposed to a two, three, or four unit building), or other requirements.

These are not FHA loan restrictions, but lender guidelines, which will vary depending on the lender. FHA loans technically permit the use of construction loans to have manufactured housing assembled on site, but your participating lender may or may not offer these loans.

FHA One Time Close Construction Loans May Require Additional Considerations That Ordinary Construction Loans Do Not

FHA construction loans in some housing markets are not approved until the borrower has a building permit in hand due to long processing times for the permits, which the lender nor the FHA have any control over.

You may find that in some housing markets it’s permitted for you to apply for the construction loan while seeking a building permit, but in many cases the approval times for such permits are much lower-four months as opposed to California’s 18 months or longer.


 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.