One-Time Close Mortgages: Fact and Fiction

There are plenty of myths about building a home instead of buying someone else’s property. Do you know the facts about One-Time Close mortgages?

One-Time Close Construction Loan Facts

There are several different types of One-Time Close loans, also known as single-close construction loans. You can apply for an FHA One-Time Close construction loan, there is a VA equivalent, and even a USDA construction loan.

Construction loans are available for any financially qualified borrower and if you choose to apply for the FHA version, you DO NOT have to be a first-time home buyer to qualify.

The down payment requirements for construction loans are the same as for any other type of home loan; FHA applicants will pay 3.5% down, VA One-Time Close construction loan borrowers have the option to put no money down, and in all cases (for government-backed construction loans) there is no penalty for early payoff of the loan.

However, those who own their own land and want to use that land for the construction project may be able to have the entire down payment requirement waived. If land must be purchased in conjunction with the construction loan, a down payment is required for FHA construction loans. VA and USDA both have zero-down options.

These are the loan program standards, your lender may have additional requirements. It’s best to ask about these as early as possible where applicable.

In general, you may be required by the participating lender to hire others to do your construction work; you may find that the lender doesn’t allow the borrower to act as their own contractor for these loans.

One Time Close Mortgage Fiction

The FHA construction loan is NOT restricted to first-time home buyers. No FHA mortgage is, but misinformation about FHA loans (including One-Time Close construction mortgages) persists and people to this day still believe that FHA mortgages are only for first-time buyers or economically disadvantaged borrowers. This is not true.

You cannot build a house using a USDA, VA, or FHA One-Time Close loan that you do not intend to occupy as your home residence. Occupancy is required for these loans and investment properties are not approved for these loans.

In spite of what some believe, you cannot use a construction loan (FHA, VA, USDA) to build ANY kind of home--certain property types cannot be approved. You can’t build a tiny house, a shipping container home, barndominium, or other comparatively unusual properties. In addition to the occupancy requirement, the home constructed must have “comarables” to help establish its value in that housing market. Tiny homes, log cabin homes, and similar property types are much harder to find comparables for and most lenders simply won’t offer loans for these housing types.

One important aspect of construction loans to be aware of; FHA, USDA, and VA mortgages typically may allow some form of down payment assistance (local agencies providing help for qualifying borrowers is one good example) so it would be easy to assume that down payment assistance is permitted for construction loans, too.
 
This is not true--you will find that most lenders will not allow downpayment assistance for construction mortgages. Don’t assume that the same features of other government-backed loans automatically become available for this type of lending, too.

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.

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 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: 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 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 $1,500,000 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.