There Are Different Kinds of One-Time Close Construction Loans

January 13, 2020

Are you looking to build a home from the ground up on your own land? A One-Time Close (OTC) construction loan can help you do that without the requirement some other construction loans have -- two applications, two loans, and two closing dates. Certain versions of this type of mortgage require one loan for the mortgage and a separate loan for the construction project itself.

One-Time Close Construction loans are for first-time home buyers AND experienced homeowners alike. If you qualify for the loan with your credit scores, income, and employment, you can build a home of your own.

Not so with the One-Time Close mortgage. But there are several varieties of OTC loans that have their own distinct advantages and features. What are they?

1) USDA One-Time Close Loans

The USDA version of the One-Time Close loan is intended strictly for low-income to moderate-income borrowers.

There is a need-based component to USDA construction loans so if you are concerned that your household income may exceed the caps for a USDA mortgage, it’s best to look at one of the other programs (see below). The need-based component of these loans make them different from the other two types of OTC discussed here.

2) VA One-Time Close Loans

VA OTCs are for qualifying veterans and current service members who have served a minimum time in uniform. Military members and their spouses can apply for a VA loan together including construction loans.

The biggest differences for the VA version of a OTC loan include the fact that most typical VA home loans require zero money down, and starting in 2020 there are no VA loan guaranty limits, meaning that the borrower and lender can negotiate the loan amount without additional guidelines to follow from the VA itself.

3) FHA One-Time Close Loans

The FHA One-Time Close Construction loan features a low 3.5% down payment in many cases, and offers borrowers the ability to build the home from scratch without qualifying for a need-based loan (see the USDA section above). FHA loan limits increased again in 2020, adding more borrowing power in the new year. 

FHA OTC mortgages have the same FICO score requirements as the other FHA mortgages, though some participating lenders may have more strict FICO score rules for construction loans than for existing construction mortgages.


 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.