Is an FHA One-Time Close Construction Loan Right for You?

May 8, 2022

Some people aren’t sure which home loan product is right for them. In some cases it’s a question of supply and demand; if you seek an FHA manufactured home loan in New York City you are likely to be disappointed. But what about less obvious issues? Is building a home better than buying someone else’s house?

That depends greatly on your financial needs, goals, and plans for the home in the future. One great example; the borrower who owns land may find a One-Time Close construction loan more tempting if there is enough land equity to eliminate the down payment requirement.

In this situation, it makes a great deal of sense to consider a construction loan, especially if the home is to be owned long-term.

What about the borrower who might struggle to raise down payment funds and may wish to consider a local downpayment assistance program? You may find lenders unwilling to approve a construction loan if down payment assistance is needed. In circumstances like these, buying an existing construction home may be the better bet.

Your plans for the home are crucial; do you plan to keep the property long-term? Or do you already know you may sell at some point? That may or may not affect your decision to commit to building, but the size of the project may be dictated by these plans.
 
You wouldn’t want to build a starter home you’ll grow out of in a few years. Instead, it may be smart to consider building a home you can grow into. But finances will dictate how large you wish to go.

Like any type of home loan, preparing your credit ahead of a construction loan application is important. And borrowers who have less-than-perfect credit will want to be mindful of the fact that construction loans may require higher FICO scores than FHA home loans for existing construction.

This is not an FHA requirement but rather reflects what lenders are willing to work with. Typically FHA One-Time Close loans may feature lender FICO score requirements in the mid-600s, with a 660 score being a good goal to consider when you are considering your timeline for applying.

You can work on your credit by paying on time, every time, and lowering your credit card balances. You should give yourself enough time to establish a full 12 months of on-time payment history, and that will also help you reduce your credit card balances and other outgoing debt.
 
A construction loan is a bit harder to qualify for than other types of home loans but working on your credit long enough could help you get a lot closer to loan approval. And you’ll also be glad of that additional time to save for your down payment, closing costs, and other expenses. Building a home from the ground up is a great option if you take enough time to plan and save.


 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.