Building A Home? Pitfalls To Avoid
April 18, 2023
If you want to build a home with a One-Time Close construction loan and are new to the process, there are some things to watch out for.
Do you know when a contractor proposes a legitimate workaround to a problem compared to taking a possibly illegal shortcut? Keep reading; we explore some of those scenarios below.
Get Any Contractor Promises In Writing
When you are approved for a Single-Close construction loan to build your home, your lender must provide some things for you in writing; a loan estimate, a sales contract, loan agreement.
When it’s time to establish an interest rate for the loan, you’ll negotiate the rate and agree to a rate lock commitment from the lender.
But there are other things to get in writing. Your contractors should provide you with quotes in writing, but in cases where the contractor omitted things you agreed to verbally, oversight or not, you don’t want to sign an agreement until what you agreed to verbally is included in the contract.
Why?
Because if it’s not mentioned, the contractor may be able to charge you for that legally as “added labor.” Don’t fall victim to that; carefully read your agreements with your contractors and refuse to commit to an incomplete contract no matter what the builder says.
Valid Permits Are Crucial
When researching your construction loan options, you may read horror stories about people talked into allowing a builder to work without the required permits.
One version of this involves the builder asking the borrower to apply for a less complicated “do-it-yourself” type permit; others may involve pressure from the contractor claiming the authorities won’t really know or care. Don’t fall for this one.
One real estate publication notes that on smaller contract work, the contractor “may try to skirt the rule by telling you that authorities won’t notice.” Whether or not that is true, government-backed construction loans such as FHA One-Time Close mortgages or VA One-Time Close loans, proper permits to build your home are a condition of loan approval.
Beware Excessive Up Front Payments
Ask your lender what’s typical for upfront payments to contractors. You may find that a modest amount, 10% of the total contract, is required upfront in many cases. Less reputable contractors may try to charge you up to 50%.
Don’t fall for this. Ask your lender, compare contractors in the local area, and don’t take the first offer you’re given.
Want More Information About One-Time Close Loans?
We have extensively researched 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 with 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 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 allow 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.
Contact Us: Send Us Your Request – Spam Safe
Please send your email request to [email protected] which authorizes OneTimeClose.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 is an eligible veteran, 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 VA lenders will go up to $1,500,000 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 when a contractor proposes a legitimate workaround to a problem compared to taking a possibly illegal shortcut? Keep reading; we explore some of those scenarios below.
Get Any Contractor Promises In Writing
When you are approved for a Single-Close construction loan to build your home, your lender must provide some things for you in writing; a loan estimate, a sales contract, loan agreement.
When it’s time to establish an interest rate for the loan, you’ll negotiate the rate and agree to a rate lock commitment from the lender.
But there are other things to get in writing. Your contractors should provide you with quotes in writing, but in cases where the contractor omitted things you agreed to verbally, oversight or not, you don’t want to sign an agreement until what you agreed to verbally is included in the contract.
Why?
Because if it’s not mentioned, the contractor may be able to charge you for that legally as “added labor.” Don’t fall victim to that; carefully read your agreements with your contractors and refuse to commit to an incomplete contract no matter what the builder says.
Valid Permits Are Crucial
When researching your construction loan options, you may read horror stories about people talked into allowing a builder to work without the required permits.
One version of this involves the builder asking the borrower to apply for a less complicated “do-it-yourself” type permit; others may involve pressure from the contractor claiming the authorities won’t really know or care. Don’t fall for this one.
One real estate publication notes that on smaller contract work, the contractor “may try to skirt the rule by telling you that authorities won’t notice.” Whether or not that is true, government-backed construction loans such as FHA One-Time Close mortgages or VA One-Time Close loans, proper permits to build your home are a condition of loan approval.
Beware Excessive Up Front Payments
Ask your lender what’s typical for upfront payments to contractors. You may find that a modest amount, 10% of the total contract, is required upfront in many cases. Less reputable contractors may try to charge you up to 50%.
Don’t fall for this. Ask your lender, compare contractors in the local area, and don’t take the first offer you’re given.
Want More Information About One-Time Close Loans?
We have extensively researched 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 with 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 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 allow 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.
Contact Us: Send Us Your Request – Spam Safe
Please send your email request to [email protected] which authorizes OneTimeClose.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 is an eligible veteran, 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 VA lenders will go up to $1,500,000 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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