Construction Loans: What To Ask Before You Commit
November 16, 2023
Are you tempted to build a home from the ground up with an FHA construction loan or a VA One-Time Close mortgage? Building is better for some than buying existing construction, but there are some important factors to consider.
Construction loans are more complicated than existing construction loans. The buyer needs contractors, must use escrow to deliver funds to those contractors, and must pass inspections for state or local building code.
But the results of that effort are worth it for many. There are some important things you should ask about when considering a One-Time Close construction loan option.
Do You Need To Invest Your Own Money?
Borrowers who struggle to pay out-of-pocket expenses related to a purchase loan may struggle more with a construction loan.
You should anticipate the project going over budget and decide how to handle such cost overruns. Whether or not you pay out of pocket or attempt a bridge loan type option (not appropriate for all situations) will depend greatly on your own finances and the guidelines under which your construction loan are operating.
Then, there’s the issue with certain add-ons to the home that may not be covered under a government-backed loan program like the FHA or VA. You won’t be able to use FHA loan funds, for example, to install a swimming pool or barbecue.
Such items can be added at your own expense out-of-pocket. But FHA or VA home loan funds won’t cover these items.
That’s because they are deemed “luxury items” and not necessary additions to the property.
How Much Time Will The Project Take?
Borrowers in a hurry will get frustrated by the construction loan process; manage your expectations when construction is involved and assume there will be delays, cost overruns and other issues related to the unexpected.
When you need to hire a third party, and that third party also needs raw materials and equipment, that project is naturally subject to delay. Don’t assume the work will go off 100% without a hitch.
Builders’ Guarantee?
What kind of warranty or guarantee does your new home come with? Never make assumptions about issues that could cost you money later. Get all promises or warranties in writing in advance.
If there is a limited warranty, find out what those limitations are, plus how long the warranty is good for.
Legal Paperwork
Always double-check to ensure your builder has all state-required insurance, permits, and other paperwork.The more transparency you get from your contractor, the better.
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 who 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.
Construction loans are more complicated than existing construction loans. The buyer needs contractors, must use escrow to deliver funds to those contractors, and must pass inspections for state or local building code.
But the results of that effort are worth it for many. There are some important things you should ask about when considering a One-Time Close construction loan option.
Do You Need To Invest Your Own Money?
Borrowers who struggle to pay out-of-pocket expenses related to a purchase loan may struggle more with a construction loan.
You should anticipate the project going over budget and decide how to handle such cost overruns. Whether or not you pay out of pocket or attempt a bridge loan type option (not appropriate for all situations) will depend greatly on your own finances and the guidelines under which your construction loan are operating.
Then, there’s the issue with certain add-ons to the home that may not be covered under a government-backed loan program like the FHA or VA. You won’t be able to use FHA loan funds, for example, to install a swimming pool or barbecue.
Such items can be added at your own expense out-of-pocket. But FHA or VA home loan funds won’t cover these items.
That’s because they are deemed “luxury items” and not necessary additions to the property.
How Much Time Will The Project Take?
Borrowers in a hurry will get frustrated by the construction loan process; manage your expectations when construction is involved and assume there will be delays, cost overruns and other issues related to the unexpected.
When you need to hire a third party, and that third party also needs raw materials and equipment, that project is naturally subject to delay. Don’t assume the work will go off 100% without a hitch.
Builders’ Guarantee?
What kind of warranty or guarantee does your new home come with? Never make assumptions about issues that could cost you money later. Get all promises or warranties in writing in advance.
If there is a limited warranty, find out what those limitations are, plus how long the warranty is good for.
Legal Paperwork
Always double-check to ensure your builder has all state-required insurance, permits, and other paperwork.The more transparency you get from your contractor, the better.
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 who 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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Articles, Updates, and Guidelines
FHA Single Close Construction Loans
July 26, 2024The Federal Housing Administration (FHA) offers qualifying borrowers the option to build a home from the ground up using a Single Close FHA Construction Loan. This program, also known as a One-Time Close construction mortgage, allows borrowers to finance the construction of a new home and convert it into a permanent mortgage with just one closing, streamlining the often complex process of building a house.
The VA Construction Loan Timeline
July 19, 2024VA One-Time Close construction loans help qualifying veterans build homes they will own and occupy once the construction phase is complete. One-time close loans, or construction-to-permanent loans, combine construction and permanent financing into a single closing procedure. VA One-Time Close mortgages have no VA-required down payment or mortgage insurance, making them attractive options for qualifying borrowers.
Construction Loan Choices
July 12, 2024When planning a construction loan, you have many options. For example, do you want to buy land with a loan to build the house? Or do you already own a parcel suitable for the construction project? There are many other choices to make with home loans, but some don’t necessarily apply to construction mortgages.
