Five Important FHA and VA Construction Loan Approval Questions
May 22, 2021
What does it take to get approved for a One-Time Close construction loan? Many borrowers are tempted to build a dream home instead of buying an existing house. If you want to build a house on your own land the One-Time Close mortgage is for you. VA One-Time close mortgages for military members and veterans offer a no down payment option, and FHA One-Time Close mortgages have a low 3.5% down payment requirement. Who qualifies for these loans?
I Have “Good” Credit. Do I Qualify for a One-Time Close Construction Loan?
Borrowers with good to excellent credit are right for a One-Time Close mortgage. Be advised that VA loan rules have no minimum FICO score and FHA loan rules specify a minimum FICO score range of 580 or higher for the lowest down payment. However, your participating lender for both VA and FHA mortgages may have higher-than-minimum requirements.
You can work on your credit ahead of your loan application if you are concerned about your scores by making all payments on time for at least 12 months, and not opening new credit in the meantime. Construction loans typically have slightly higher credit score requirements so if you are worried about your scores, call the FHA (1-800 CALL FHA) and request a referral to a local, HUD-approved housing counselor who can help with advice on preparing your credit for a new mortgage.
I am a First-Time Home Buyer. Do I Qualify fora One-Time Close Construction Loan?
You are not required to be an experienced homeowner to be approved for a construction loan. You ALSO do NOT have to be a first-time home buyer in order to be considered for an FHA mortgage of any kind.
Construction loans are not restricted to a certain type of borrower--if you financially qualify, you get the mortgage. You ARE required to occupy the home you build with your construction loan--these loans are for owner/occupiers and NOT for investment property.
I Own the Land Where I Want to Build My Dream Home. Do I Still Need to Make a Down Payment?
If you own land you want to build on, ask your lender about using the equity in your land for the down payment. Depending on circumstances you may be able to skip the down payment altogether if you have enough equity.
Who Can Act as My Contractor on a Construction Loan?
Some borrowers ask this hoping the lender will allow them to do the work, but the rules of these construction loans include requirements that all contractors be properly certified, licensed, etc. Your lender will not allow you to act as your own builder and you will need to show paperwork proving the crews you do hire are properly credentialed. You also cannot hire your friends and family to do the work for you--this is a construction project that must be done “by the numbers.”
Can I Get Down Payment Assistance on My Construction Loan?
Most participating lenders will not permit down payment assistance on a construction loan. The borrower is expected to be able to financially cover all the costs of the loan including the down payment.
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.
I Have “Good” Credit. Do I Qualify for a One-Time Close Construction Loan?
Borrowers with good to excellent credit are right for a One-Time Close mortgage. Be advised that VA loan rules have no minimum FICO score and FHA loan rules specify a minimum FICO score range of 580 or higher for the lowest down payment. However, your participating lender for both VA and FHA mortgages may have higher-than-minimum requirements.
You can work on your credit ahead of your loan application if you are concerned about your scores by making all payments on time for at least 12 months, and not opening new credit in the meantime. Construction loans typically have slightly higher credit score requirements so if you are worried about your scores, call the FHA (1-800 CALL FHA) and request a referral to a local, HUD-approved housing counselor who can help with advice on preparing your credit for a new mortgage.
I am a First-Time Home Buyer. Do I Qualify fora One-Time Close Construction Loan?
You are not required to be an experienced homeowner to be approved for a construction loan. You ALSO do NOT have to be a first-time home buyer in order to be considered for an FHA mortgage of any kind.
Construction loans are not restricted to a certain type of borrower--if you financially qualify, you get the mortgage. You ARE required to occupy the home you build with your construction loan--these loans are for owner/occupiers and NOT for investment property.
I Own the Land Where I Want to Build My Dream Home. Do I Still Need to Make a Down Payment?
If you own land you want to build on, ask your lender about using the equity in your land for the down payment. Depending on circumstances you may be able to skip the down payment altogether if you have enough equity.
Who Can Act as My Contractor on a Construction Loan?
Some borrowers ask this hoping the lender will allow them to do the work, but the rules of these construction loans include requirements that all contractors be properly certified, licensed, etc. Your lender will not allow you to act as your own builder and you will need to show paperwork proving the crews you do hire are properly credentialed. You also cannot hire your friends and family to do the work for you--this is a construction project that must be done “by the numbers.”
Can I Get Down Payment Assistance on My Construction Loan?
Most participating lenders will not permit down payment assistance on a construction loan. The borrower is expected to be able to financially cover all the costs of the loan including the down payment.
FHA, VA, and USDA: One-Time Close LoansWant 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.
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