Important Details About Your FHA Construction Loan
October 6, 2022
The FHA One-Time Close construction loan, also known as a single-close construction loan, is a good option to consider if you want to build a home from the ground up with a low down payment.
If you are thinking of this type of home loan, you’ll need some extra planning time and there are some important questions to ask early in the process. Some borrowers may not know to ask a few of these questions but getting the answers early in your home loan journey could help you make better choices about your new home.
Lender Choices
Choosing a builder is an important part of the early stages of your project, but it’s not safe to assume that the lender you select is able to issue your loan. What happens if the land where you plan to build is outside of your participating FHA lender’s “lending area?” This is not always a problem, but when it does arise it can make things more complicated for a new borrower.
There are larger lenders with a nationwide presence, and there are smaller FHA lenders that may not loan money outside a specific geographic region. Not being able to use the first choice of lenders is an unexpected problem for some but you can anticipate this problem by letting a participating lender know where you plan to build when you are comparing loan options.
If you are comparing those options online, chances are good any forms you fill out on a lender’s website will anticipate this issue. But if you are comparing over the phone or in person, don’t forget to ask what the lending footprint for that financial institution is--you will be glad you did.
FHA Loan Limit Issues
FHA Loan limits vary depending on zip code. Not all housing markets are “typical cost” areas, some are far more expensive and some others may feature below-market average prices. Know the FHA loan limits for your area when determining whether you need a conforming loan or a FHA jumbo loan. You may find some lenders aren’t willing to issue a jumbo loan for construction, while others may approve them but with more strict credit guidelines. Your experience may vary.
Other Issues
It’s easy to make bad assumptions about a home loan if you have never applied for one before. A common one is that home loan funds are accessible by the borrower, but in reality this is typically not true.
You can’t use FHA One-Time Close loan funds for purposes spelled out in the loan agreement. Cash back to the borrower is typically not allowed except for refunds, and when it is time to pay contractors or buy materials loan funds do not pass through the borrower’s hands. The payments are made via escrow, which is normally required for an FHA construction loan or FHA Rehabilitation loan.
The rules for draws may vary depending on your participating FHA lender. You will need to discuss the draw schedule for your specific project with the lender to learn what happens during that transaction.
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.
If you are thinking of this type of home loan, you’ll need some extra planning time and there are some important questions to ask early in the process. Some borrowers may not know to ask a few of these questions but getting the answers early in your home loan journey could help you make better choices about your new home.
Lender Choices
Choosing a builder is an important part of the early stages of your project, but it’s not safe to assume that the lender you select is able to issue your loan. What happens if the land where you plan to build is outside of your participating FHA lender’s “lending area?” This is not always a problem, but when it does arise it can make things more complicated for a new borrower.
There are larger lenders with a nationwide presence, and there are smaller FHA lenders that may not loan money outside a specific geographic region. Not being able to use the first choice of lenders is an unexpected problem for some but you can anticipate this problem by letting a participating lender know where you plan to build when you are comparing loan options.
If you are comparing those options online, chances are good any forms you fill out on a lender’s website will anticipate this issue. But if you are comparing over the phone or in person, don’t forget to ask what the lending footprint for that financial institution is--you will be glad you did.
FHA Loan Limit Issues
FHA Loan limits vary depending on zip code. Not all housing markets are “typical cost” areas, some are far more expensive and some others may feature below-market average prices. Know the FHA loan limits for your area when determining whether you need a conforming loan or a FHA jumbo loan. You may find some lenders aren’t willing to issue a jumbo loan for construction, while others may approve them but with more strict credit guidelines. Your experience may vary.
Other Issues
It’s easy to make bad assumptions about a home loan if you have never applied for one before. A common one is that home loan funds are accessible by the borrower, but in reality this is typically not true.
You can’t use FHA One-Time Close loan funds for purposes spelled out in the loan agreement. Cash back to the borrower is typically not allowed except for refunds, and when it is time to pay contractors or buy materials loan funds do not pass through the borrower’s hands. The payments are made via escrow, which is normally required for an FHA construction loan or FHA Rehabilitation loan.
The rules for draws may vary depending on your participating FHA lender. You will need to discuss the draw schedule for your specific project with the lender to learn what happens during that transaction.
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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