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Depending on which type of One-Time Close loan you apply for (FHA, VA, USDA) you may find rules dictating whether a borrower can act as his or her own contractor for construction work. For the VA OTC programs, there are rules that specifically prevent this.

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FHA.com is a privately owned website, is not a government agency, and does not make loans.

One-Time Close Construction Loan Advice from the VA

August 21, 2018

One-Time Close Construction Loan Advice from the VA
Borrowers looking for a One-Time Close (OTC) Construction loan / Single-Close Construction loan have several options. There is an FHA One Time Close construction loan available to all financially qualified borrowers, there is a USDA construction loan that features one application and closing date for qualified borrowers living in rural areas with populations that meet federal guidelines-35,000 citizens or less at the time of this writing.

And then there is the VA One-Time Close Construction Loan, which is available to financially qualified borrowers who have served a minimum time on military duty.

This VA loan is also open to certain qualified surviving spouses of military members who have died as a result of military service, are listed as missing in action (MIA) or prisoners of war (POW).

The Department of Veterans Affairs official site has some advice for veterans and those currently serving who are interested in their home loan options with a VA One-Time Close construction loan.

Depending on which type of One Time Close loan you apply for (FHA, VA, USDA) you may find rules for these programs that do or do not permit the borrower to act as his or her own contractor for construction work; in the case of VA OTC loans, there are rules that specifically prevent this.

It’s good to know that when the program you choose does permit the borrower to act as a contractor, lender standards may also apply-the lender may not approve such a transaction in spite of it being technically permitted where applicable.

The VA official site states that the borrower will be required to submit plans and specification for the construction project as part of the application process. This will need to be done in conjunction with the builder.

One very good piece of advice from the Department of Veterans Affairs about VA One-Time Close construction loans involved your early choices for design specs. “Make sure you are building a home that is common in size and design for the area.”

Furthermore, “The home must be appraised per the plans and specs given to the appraiser. If a borrower over builds for the area, or builds an uncommon home, the appraisal may come in lower than needed for a zero down payment.”

The down payment issue is an important one because hypothetically, any financially qualified VA borrower can technically apply for a loan with zero money down. But if the appraised value of the property is lower than the price, the borrower will be asked to make up the difference in cash, rather than financing the difference into the loan.

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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