Building a Home Instead of Buying

December 23, 2020

The FHA One-Time Close mortgage allows even first-time home buyers the chance to have a house built to their specifications rather than trying to find just the right property on the housing market. This option, also available as a VA construction loan and even a USDA version, is ideal for some borrowers. But which ones?

Don’t Be in a Hurry to Build

Construction Loans aren’t for those in a hurry; it takes time to select the plans for your home, find a builder (you’ll be required to hire a builder rather than acting as your own contractor) and have the work done. If you need a home NOW, it may be best to consider buying new construction or existing construction properties that are already finished.

FHA One-Time Close construction loans are good for borrowers who aren’t worried about being able to qualify for the home loan with their FICO scores.

In general, participating lenders may have higher credit standards for construction loans than for existing construction mortgages. Be sure to ask the lender what FICO score ranges are acceptable for building your home on your own lot.

FHA construction loans can be very good for those who want a certain type of housing--you can choose the style, the materials, the appliances, etc.

Certain Housing Types Aren'tt Allowed

But if you have an interest in certain housing fads such as tiny homes, barndominiums, log cabin homes or shipping container houses you’ll need to look elsewhere as the FHA One-Time Close loan can’t be approved for such transactions.

A construction loan requires planning; you and your lender will work together to plan the loan including setting up an escrow account for the money you will need to pay contractors, purchase materials, etc. Know that the money you get from the loan is not considered “cash out” and can only be used for approved purposes associated directly with the construction of the home. You can’t use these funds for other purposes.

Mortgage Payment Questions

If you choose to build instead of buying an existing home, be sure to discuss the timing of your mortgage payments with your loan officer. You will find your monthly payments may not be due until the construction phase is over.

But your loan will still be required to be paid off within the term of the loan--if you get a 30 year loan and you don’t make a hypothetical mortgage payment until six months later, you still must pay off the entire mortgage within the term of the loan and not the term of the loan plus six months.

Ask your lender what approach is best to avoid surprises later on down the line in terms of your final payoff amount, changes in your monthly mortgage obligation, etc.

 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.