Home Construction Mortgage Options: One-Time Close Loans

December 30, 2020

If you want to build a home on your own land or on land you buy in conjunction with your construction loan, you should know there are a variety of construction mortgages out there and  not all of them are the same. There are construction loans that force you to endure two applications and credit checks, two rounds of loan approval, and two closing dates.

But there is a more streamlined home construction loan option known as the One-Time Close construction loan. Ask your loan officer about the FHA and/or VA One-Time Close construction loan programs if you want a single loan application, a single closing date, a low down payment, and no penalty for early payoff.

Some do not explore their construction loan options because they have heard things about the program that are wrong, don’t apply to them, etc. But these myths about the construction loan process are easily cleared up by talking to a loan officer.

FHA One-Time Close Home Construction Loan Myths You Should Ignore

Construction loan myths include the idea that you cannot be a first-time home buyer to qualify, and the idea that FHA construction loans are need-based mortgages that people with “too much income” do not qualify for. But this is NOT TRUE.

Another Construction Loan myth? That you don't need an inspection or appraisal since the property will be brand new. But an appraisal and an inspection could still catch issues with a home even if brand-new. For your own protection you should get a home inspection and you’ll want to ask the lender about the process required to insure the home meets lender and FHA minimum requirements.

Why? Because all government backed mortgages including FHA and VA construction loans require the property to meet local building code requirements as well as minimum safety and habitability standards--and that applies new construction or not.

One-Time Close Loan Advice

Rushing ahead is a bad idea. Plan your project carefully with the idea that you won’t make any radical life changes in the meantime. Plan on NOT changing careers before of your home loan application. Switching to self-employment or from salary to commission income in the year leading up to your home loan application could make it a lot harder for the lender to justify approving your loan. 

In the budgeting stages remember that most lenders won't approve the borrower acting as their own contractor. Some want to be their own builder to save money but don’t expect to be able to do that with a construction loan. Be prepared to make the minimum down payment, pay for closing costs, and anticipate other payments like pest control measures, etc.

One-Time Close mortgages, like other government-backed loans, don't permit cash payments to the borrower at closing time. There are exceptions for refunds of things paid for upfront but later financed into the mortgage but the borrower won’t be permitted to be their own builder, work more cheaply than anticipated, and get the difference out in cash. That is a situation the FHA anticipates and has set up rules to prevent--usually for the borrower’s own good when it comes to cutting corners in the construction phase.

 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.