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There are FHA One-Time Close construction loans, but also USDA and VA One-Time Close construction loans. When you choose the FHA version of the OTC, there are some important differences you should know.

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Do FHA One-Time Close Mortgages Require a Down Payment?

Do FHA One-Time Close Mortgages Require a Down Payment?
May 1, 2018 - In the past we have reported on One-Time Close Construction (OTC) Loan options for borrowers who wish to buy land (or who already own land) and have a property built for them from the ground up.

There are FHA One-Time Close construction loans, but also USDA and VA One-Time Close construction loans. When you choose the FHA version of the OTC, there are some important differences you should know.

For example, VA construction loans are governed by VA loan rules which include a zero down payment option for qualified borrowers (lender standards will also apply). But with the FHA loan version, there definitely IS a down payment-a minimum of 3.5% of the lesser of the appraised value or the acquisition cost.

HUD 4000.1 states:

The maximum mortgage amount is calculated using the appropriate purchase Loan-to- Value (LTV) percentage of the lesser of the appraised value or the documented Acquisition Cost. The documented Acquisition Cost of the Property includes:
  • the builder’s price to build;
  • borrower-paid extras over and above the contract specifications and/or out-of- pocket expenses not included in the builder’s price to build;
  • cost of the land if already owned, or with an acceptable gift documentation, the appraised value of the land may be used instead of the cost; and
  • closing costs associated with any interim financing of the land.        
FHA loan rules say that in cases where the land is purchased from the builder, “the cost must be included in the builder’s to build”. That guidance is found on page 445 of the FHA Single Family Loan Handbook.

Where can the borrower’s down payment come from when it comes to FHA One Time Close construction loans? HUD 4000.1 instructs the lender to accept “any cash investment in the Acquisition Cost of the Property to satisfy the Minimum Required Investment (MRI).” The lender will also be required to properly document the sources of such funds. But that’s not all, according to HUD 4000.1:

“The Mortgagee must document the cash investment was from an acceptable source of funds in accordance with TOTAL or manual underwriting requirements as applicable.The Mortgagee must document the cost and date of purchase of the land, if already owned, by obtaining the Closing Disclosure or similar legal document.” The same applies to any “borrower-paid extras” above and beyond what is specified in the contract.

Learn More About FHA, VA and USDA One-Time Close Construction Loans / Single-Close Construction Loans

We have done extensive research on One-Time Close / Single-Close construction loans and spoke directly to the 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 us to share your personal information with a licensed mortgage lender in your area to contact you.

Please note that the One-Time Close / Single-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?  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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