FHA Single-Close Construction Loans and Rehab Loan Issues
September 16, 2022
If you seek an FHA One-Time Close construction loan or an FHA 203(k) Rehabilitation loan, there are some questions to ask when comparing lenders. Not all options are identical and you will need to know the lender’s policy on things like how the loan converts from the construction phase to the permanent phase.
FHA Single-Close Construction Loan Terms: Interest Rate Issues
An FHA construction loan has two phases--one is the construction phase, and when the building is complete, the second phase begins. Known as the permanent phase, this is when your loan becomes your mortgage.
With conventional construction loans you may pay only interest during the construction phase. Be sure to ask your participating lender what your options are under an FHA construction loan compared to a conventional one, especially when it comes to how payments are made while construction is still happening.
You should also ask about the lender’s policy about adjustable rates during the construction phase--know under what conditions you may get an adjusted interest rate while your home is being built.
When comparing lenders, the answers you get for these questions may be fairly standard, but it’s not safe to assume you will get identical terms and conditions with any One-Time Close construction loan lender. It’s also good to know whether a conventional construction lender offers similar terms and conditions to an FHA equivalent.
FHA Loan Rules for Escrow
Construction loans and FHA Rehab loans both require the use of escrow. Ask your lender how this will work, and what your responsibilities are for the escrow account when you are leaving the construction or rehab phase of the process.
Will you keep the same escrow account, and reuse it for making property tax payments? Be aware that some construction or rehab loans come in under budget. You’ll want to ask your lender what the policy is in such cases, but in general do not expect to be given access to any remaining loan funds--the borrower is not permitted unrestricted cash back except for refunds in typical cases.
FHA Loan Rules for Approval: Occupancy Counts
FHA lenders cannot approve One-Time Close construction loans or FHA 203(k) Rehabilitation loans for properties you don’t intend to occupy. Some conventional lenders may allow you to build or improve a vacation home, but FHA loan rules say these loans are for owner-occupiers.
Typically, all government-backed construction or rehab loans require occupancy.
Conventional lenders may be more lenient in this area, but if you need a lower down payment for a construction loan or rehab loan, the FHA loan program requires a minimum of only 3.5% down for qualified applicants. The trade-off you get for the lower down payment includes the occupancy requirement.
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) and the VA (Department of Veterans Affairs) 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.
FHA.com provides information and connects consumers to qualified One-Time Close lenders 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 and VA 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, including but not limited to: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes, Dome Homes, Bermed Earth Sheltered Homes, Tiny Homes, Accessory Dwelling Units, or A-Framed Homes.
Contact Us: Send Us Your Request – Spam Safe
Please send your email request to [email protected] which authorizes FHA.com to share your personal information with one 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 $1,000,000 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.
FHA Single-Close Construction Loan Terms: Interest Rate Issues
An FHA construction loan has two phases--one is the construction phase, and when the building is complete, the second phase begins. Known as the permanent phase, this is when your loan becomes your mortgage.
With conventional construction loans you may pay only interest during the construction phase. Be sure to ask your participating lender what your options are under an FHA construction loan compared to a conventional one, especially when it comes to how payments are made while construction is still happening.
You should also ask about the lender’s policy about adjustable rates during the construction phase--know under what conditions you may get an adjusted interest rate while your home is being built.
When comparing lenders, the answers you get for these questions may be fairly standard, but it’s not safe to assume you will get identical terms and conditions with any One-Time Close construction loan lender. It’s also good to know whether a conventional construction lender offers similar terms and conditions to an FHA equivalent.
FHA Loan Rules for Escrow
Construction loans and FHA Rehab loans both require the use of escrow. Ask your lender how this will work, and what your responsibilities are for the escrow account when you are leaving the construction or rehab phase of the process.
Will you keep the same escrow account, and reuse it for making property tax payments? Be aware that some construction or rehab loans come in under budget. You’ll want to ask your lender what the policy is in such cases, but in general do not expect to be given access to any remaining loan funds--the borrower is not permitted unrestricted cash back except for refunds in typical cases.
FHA Loan Rules for Approval: Occupancy Counts
FHA lenders cannot approve One-Time Close construction loans or FHA 203(k) Rehabilitation loans for properties you don’t intend to occupy. Some conventional lenders may allow you to build or improve a vacation home, but FHA loan rules say these loans are for owner-occupiers.
Typically, all government-backed construction or rehab loans require occupancy.
Conventional lenders may be more lenient in this area, but if you need a lower down payment for a construction loan or rehab loan, the FHA loan program requires a minimum of only 3.5% down for qualified applicants. The trade-off you get for the lower down payment includes the occupancy requirement.
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) and the VA (Department of Veterans Affairs) 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.
FHA.com provides information and connects consumers to qualified One-Time Close lenders 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 and VA 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, including but not limited to: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes, Dome Homes, Bermed Earth Sheltered Homes, Tiny Homes, Accessory Dwelling Units, or A-Framed Homes.
Contact Us: Send Us Your Request – Spam Safe
Please send your email request to [email protected] which authorizes FHA.com to share your personal information with one 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 $1,000,000 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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