Amortization and the FHA One-Time Close Construction Loan

April 26, 2021

The FHA One-Time Close construction loan, like its USDA and VA counterparts, is a mortgage that allows you to have a house built to your specifications rather than buying an existing home. This loan has some obvious advantages--you don’t have to make do with a design you aren’t thrilled with and that can’t be changed without hiring people to come in and make changes.

The One-Time Close loan allows you to build on your own lot or to purchase land with loan funds. But what is the difference between this type of loan compared to a purchase mortgage? There are several including the speed of which the entire start-to-finish process occurs (One-Time Close loans can take longer to move into depending on how fast the construction phase of the loan goes.

FHA Construction Loan Amortization

But one issue borrowers need to be aware of when using a construction loan--amortization issues. What is home loan amortization? Basically it is the amount of money you must pay each month for the entire duration of your home loan to pay it off.

Your total home loan amount due, divided by the total number of months of the loan gives you the amortization month for the last payment of the loan in addition to the monthly amount you must pay to reach that payoff at the end of the loan term.

 If you apply for a 30 year mortgage and construction takes six months (this is a random length, not what you should actually expect for completion times), you should understand what FHA loan rules in the FHA Single Family Home Loan Handbook about when your mortgage payments begin:

How Long Will it Take to Pay Off?

“The Mortgage must be endorsed within 60 Days of the final inspection or issuance of the Certificate of Occupancy (CO), whichever is later.” That establishes when the lender must endorse the loan, but the date of issuance of the Certificate of Occupancy plays an important role in the start of mortgage payments on the construction loan:
                            
“Amortization of the permanent Mortgage must begin no later than the first of the month following 60 Days from the date of the final inspection or issuance of the CO.”

Your Payment Start Date

That means that your home loan mortgage payments do not necessarily begin on the date your loan is approved. And whatever delay there is in your mortgage payments does NOT translate into an extension of your mortgage. There is no extension--the final payment is still due on the same date regardless of when you start making your home loan payments.

Which means that you may, depending on the delay in the start of those payments, need to make a larger payment at the ending months of your loan or increase your monthly payments in the meantime to make up for the lost time.

Remember that there is no penalty for early payoff of an FHA One-Time Close loan, so making larger than usual payments is not a problem but it is important to understand how amortization works with construction loans so that you can decide which way you’d like to handle a late start on mortgage payments compared to purchase loans where the payments begin right away once you close the loan and move in.


 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.

OneTimeClose.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 OneTimeClose.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.