FHA Single Close Construction Loans
July 26, 2024
The 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.
However, like any government-backed loan, there are specific eligibility requirements and considerations to remember.
What is an FHA Single Close Construction Loan?
An FHA Single Close Construction Loan, or a construction-to-permanent loan, allows the borrower to build a home and then convert the construction loan into a permanent mortgage once construction is complete.
This eliminates the need for two separate loan applications and closing costs, saving borrowers time and money.
Eligibility Requirements
Qualifying for an FHA One-Time Close Construction Loan means meeting specific requirements:
Credit Score: The FHA generally requires a minimum 580 FICO for the best terms for single-family home loans, but lenders may have stricter requirements for construction loans due to the higher risk involved.
Construction lenders typically seek FICO scores in the mid-600 range for FHA single-close home loans.
Debt-to-Income Ratio (DTI): FHA has a maximum DTI, but lenders may set lower limits for construction loans, so it is crucial to know that limit before application day.
Your DTI is a comparison of your monthly debt to the amount of your gross monthly income.
Down Payment: The minimum down payment for an FHA Single-Close Construction Loan is 3.5% of the total loan amount.
However, if you have a credit score below 580, you may be required to make a larger down payment. Avoiding mortgage insurance on these loans for their entire term requires a 20% down payment. Your mortgage insurance is cancellable after 11 years with 20% down.
Builders: The builder for your construction project must meet FHA requirements. This ensures that the builder has a good track record and is financially stable.
Property Standards: The home you plan to build must meet specific FHA property standards covering safety and livability. The property must also be primarily residential, and any non-residential home use must be "subordinate" to the residential use.
Owner Occupied: All homes built under this program must be owner-occupied. No investment properties are allowed.
Advantages of FHA Single Close Construction Loans
There are several advantages to using an FHA Single Close Construction Loan:
One Closing: This loan only requires one closing, which saves time and money on closing costs.
Down Payment: Your down payment requirement for an FHA construction loan is 3.5%. This is lower than many conventional construction loans. Additional lender requirements may apply.
Government Backing: FHA loans are backed by the government, which reduces the risk for lenders and can lead to better terms for FHA borrowers.
Considerations for FHA Single Close Construction Loans
Before applying for an FHA Single Close Construction Loan, it's important to consider the following:
Higher Interest Rates: Depending on the lender, construction loans may have slightly higher interest rates than existing construction.
Mortgage Insurance Premiums (MIP): Borrowers must pay MIP for the life of the loan, which adds to the overall cost.
Construction Delays: Construction projects can be unpredictable, and delays can occur. It's important to have a contingency plan in place in case they occur.
How to Apply for an FHA Single Close Construction Loan
The application process for an FHA Single Close Construction Loan is similar to the one used for existing construction FHA loans but with a few extras required. You'll need documentation of your income, assets, and debts. You must also find a builder and submit information about the proposed construction project.
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 consistently provide quality service.
If you would like to be contacted by a licensed lender in your area, please respond 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)—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 Cabins, Shipping Container Homes, Stilt Homes, Solar (only), or Wind-Powered (only) Homes.
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.
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.
However, like any government-backed loan, there are specific eligibility requirements and considerations to remember.
What is an FHA Single Close Construction Loan?
An FHA Single Close Construction Loan, or a construction-to-permanent loan, allows the borrower to build a home and then convert the construction loan into a permanent mortgage once construction is complete.
This eliminates the need for two separate loan applications and closing costs, saving borrowers time and money.
Eligibility Requirements
Qualifying for an FHA One-Time Close Construction Loan means meeting specific requirements:
Credit Score: The FHA generally requires a minimum 580 FICO for the best terms for single-family home loans, but lenders may have stricter requirements for construction loans due to the higher risk involved.
Construction lenders typically seek FICO scores in the mid-600 range for FHA single-close home loans.
Debt-to-Income Ratio (DTI): FHA has a maximum DTI, but lenders may set lower limits for construction loans, so it is crucial to know that limit before application day.
Your DTI is a comparison of your monthly debt to the amount of your gross monthly income.
Down Payment: The minimum down payment for an FHA Single-Close Construction Loan is 3.5% of the total loan amount.
However, if you have a credit score below 580, you may be required to make a larger down payment. Avoiding mortgage insurance on these loans for their entire term requires a 20% down payment. Your mortgage insurance is cancellable after 11 years with 20% down.
Builders: The builder for your construction project must meet FHA requirements. This ensures that the builder has a good track record and is financially stable.
Property Standards: The home you plan to build must meet specific FHA property standards covering safety and livability. The property must also be primarily residential, and any non-residential home use must be "subordinate" to the residential use.
Owner Occupied: All homes built under this program must be owner-occupied. No investment properties are allowed.
Advantages of FHA Single Close Construction Loans
There are several advantages to using an FHA Single Close Construction Loan:
One Closing: This loan only requires one closing, which saves time and money on closing costs.
Down Payment: Your down payment requirement for an FHA construction loan is 3.5%. This is lower than many conventional construction loans. Additional lender requirements may apply.
Government Backing: FHA loans are backed by the government, which reduces the risk for lenders and can lead to better terms for FHA borrowers.
Considerations for FHA Single Close Construction Loans
Before applying for an FHA Single Close Construction Loan, it's important to consider the following:
Higher Interest Rates: Depending on the lender, construction loans may have slightly higher interest rates than existing construction.
Mortgage Insurance Premiums (MIP): Borrowers must pay MIP for the life of the loan, which adds to the overall cost.
Construction Delays: Construction projects can be unpredictable, and delays can occur. It's important to have a contingency plan in place in case they occur.
How to Apply for an FHA Single Close Construction Loan
The application process for an FHA Single Close Construction Loan is similar to the one used for existing construction FHA loans but with a few extras required. You'll need documentation of your income, assets, and debts. You must also find a builder and submit information about the proposed construction project.
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 consistently provide quality service.
If you would like to be contacted by a licensed lender in your area, please respond 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)—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 Cabins, Shipping Container Homes, Stilt Homes, Solar (only), or Wind-Powered (only) Homes.
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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