Should You Build a Home or Buy a Home?

October 6, 2020

Build a home on your own land using a One-Time Close construction loan or buy an existing property? There are some questions to ask yourself about your financial needs and goals that could change your mind about choosing one path or the other; you might be surprised at the options open to you when considering a purchase loan or a construction mortgage.

Buy or Build? Your Immediate Needs Count

Not sure whether to buy a home or build it instead? The first question to ask yourself involves the urgency of your needs--if you need to get into a new home as soon as possible, an existing construction mortgage to purchase a home is a smart choice.

Applying for a mortgage loan can take time, but not nearly as long as it might take to build one instead. You’ll have contractors to hire, plans to approve, and the construction phase will take as long as is necessary to get the job done properly.

Some might view the above in the negative, but this is more about being pragmatic. Borrowers who have the luxury of more time (and there are plenty) should seriously consider building on their own lot or a parcel of land acquired in conjunction with the construction project, especially if customization is more important to you than the speed of completion.

How Long Do You Plan on Owning the Home?

If you’re looking for a smaller first home, there’s nothing wrong with using a construction loan to build it. But if you know you will grow out of that property at some point due to an increase in family size or other planning, it may be smart to consider a construction loan for a property you intend to use more long-term.

Those who want to build a home as an investment (meaning you want to build up equity over time with an eye on possibly using that equity at a later point) might do well to consider a construction loan like the One-Time Close mortgage to build a home they feel comfortable staying in for a long time.

What Are Your Financial Resources?

Lenders offering One-Time Close construction mortgages generally don’t allow downpayment assistance on construction loans. This is NOT an FHA loan rules limitation but rather the choice of the participating lender.

If you think you may need financial assistance in the form of a downpayment grant, it may be wise to consider your options with an FHA mortgage for an existing construction property since down payment assistance may be allowed and the down payment for the loan is the same low 3.5% for those who financially qualify for that down payment.

Those who do not qualify for a 3.5% downpayment may still be approved for an existing construction loan with 10% down, but in general if you don’t qualify for the lowest down payment, a construction loan may not be your best option. Talk to a participating lender to determine what the best mortgage loan for you might be based on your financial goals, needs, and your current credit scores.


 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.