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Are borrowers interested in building a house on their own lot required to purchase land as part of the construction plan? It’s a question some wonder about; others wonder if it’s possible to use an FHA construction loan to build on a lot they already own.

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FHA One-Time Close Construction Loans: Do You Need to Buy Land?

May 22, 2022

FHA One-Time Close Construction Loans: Do You Need to Buy Land?
Are borrowers interested in building a house on their own lot required to purchase land as part of the construction plan? It’s a question some wonder about; others wonder if it’s possible to use an FHA construction loan to build on a lot they already own.

With an FHA One-Time Close construction loan, you apply for a single loan to build a home on your own land. You have one loan application for the entire project which means you don’t have two closing dates to worry about as with “two-close” construction loans.
 
You don’t have to own land to qualify for an FHA construction loan. You can apply for a loan that covers the land acquisition cost as well as the other expenses of the loan such as the construction phase, compliance inspections, etc.

While it may be easier to qualify for an FHA One-Time Close loan than some conventional equivalents, you may have certain closing costs that aren’t applied with certain conventional mortgages. The trade here? You may have a lower down payment and generally more forgiving FICO score requirements with an FHA loan in general.

That said, FHA construction loans may have higher lender-imposed credit score requirements than for purchasing existing construction homes; expect the lender’s FICO score ranges to be higher than the FHA minimum range of 580 and higher for the lowest down payment.

When you commit to building a home, there are some considerations to keep in mind. Just like when you purchase an existing construction home with an FHA mortgage, there are issues with the location of the project that should be addressed.

For example, your new home cannot be located too close to industrial sites like wells, drilling operations, or high-pressure gas pipelines. FHA appraisal requirements in this area are fairly specific.

If you are thinking about buying a plot of land ahead of an FHA mortgage with an eye on building a home there, make sure the property isn’t affected by the proximity of any of the areas mentioned above, or in certain special flood zones or other areas such as those within a Coastal Barrier Resource System unit.

What about those who don’t need to buy land? In cases where you own land and have sufficient land equity, you may be able to get a reduced or eliminated downpayment. Be sure to ask your lender about what it takes to qualify.

Regardless of whether you want to buy land or already own it, it’s important to ensure it’s construction-ready before you apply for the loan. If existing structures need to be demolished or removed, it’s best to have that finished prior to applying for the best results.

You may want to ask a loan officer in your housing market about this. What are your responsibilities to get the land ready for the construction of your new home? This may vary depending on the housing market but in general, you may not find construction loan funds available to address an existing structure on the site.


Construction Loans at OneTimeClose.com FHA, VA, and USDA: One-Time Close Loans

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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.

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