If you would rather build your home from the ground up than buy someone else’s dream home, you’ll need to be prepared for some extra costs. It can be more expensive to build rather than buy, but for some that extra money is worth the investment.

FHA.com: Home Purchase and Refinance Loans

FHA Loan Programs for 2024

The most recognized 3.5% down payment mortgage in the country. Affordable payments w/good credit.

Are You Watching Your Credit Score?

- Improving Your Credit Score Has Never Been More Important -

FHA.com is a privately owned website, is not a government agency, and does not make loans.
FHA Home Loans

Choose a Loan Type

FHA.com is a privately owned website, is not a government agency, and does not make loans.

Interest Rates and FHA One-Time Close Construction Loans

July 25, 2022

If you would rather build your home from the ground up than buy someone else’s dream home, you’ll need to be prepared for some extra costs. It can be more expensive to build rather than buy, but for some that extra money is worth the investment if it means having more control over the final design of the home.

Naturally, those who must deal with increased costs will seek ways to lower them elsewhere. One way to do that on a construction loan is to qualify for the lowest interest rate possible. A lower rate saves you money over the lifetime of the mortgage.

This is a financial help if your home ownership plans include keeping the home you build for many years. Some might consider applying for an adjustable-rate mortgage to build a home, with a goal to save some money on the introductory interest rate and refinance into a fixed-rate mortgage when the rate adjustments begin a year or more down the line.

But finding a participating lender who would be willing to offer you a single-close construction loan with an adjustable rate may be harder than you think--you may find many lenders simply won’t agree to an adjustable rate loan for a single close construction loan project.

If you want to ensure you get the lowest rate possible on your construction loan, it is a good idea to take some extra time to work on your credit scores and debt repayment history before you apply for the loan.

By working on your credit a year or more in advance of your loan application, you could raise your FICO scores and improve your overall chances at a better rate.

Lender standards for construction loans often include higher FICO score qualifications than for those who want to purchase an existing construction home. A FICO score of 700 or higher may be considered low-risk for many borrowers.

If you need a construction loan and come to the process with scores starting in the mid-600s you may still qualify. But your lender may offer you a higher interest rate, which will make the loan cost more over time.

That isn’t a problem for some. Others may accept the higher rate, thinking that they can offset some of the costs of that higher rate by getting down payment assistance. But is this a good idea?

Down payment assistance may be an option on paper. It may not be possible to locate participating One-Time Close lenders or single-close construction loan lenders who accept down payment help for a construction loan. The idea here typically being that the construction loan is a higher-risk option and a borrower who can’t come up with the down payment on their own for such a loan may not be a good risk.

And then there’s the known as buying “points” or “discount points” the lower your interest rate. This is done before the loan closes and involves paying a specific amount to the lender for a reduction in the interest rate on the loan. How does it work? 

A 30-year mortgage for a total of $250,000 that includes the purchase of two discount points means you could pay around $5 thousand for the points, which could lower your monthly mortgage payment by $60. You could break even on the discount points about six years down the line.

The basic formula is easy to remember--borrowers who keep the home a long time will reap the most benefit from getting the lowest possible interest rate. If you plan to sell long before the loan term is up, buying discount points may not be a smart financial strategy.

Construction Loans at OneTimeClose.com 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.

Do you know what's on your credit report?

Learn what your score means.