Planning Your Construction Loan
September 20, 2022
If you want to build your home from the ground up on your own lot, the One-Time Close construction loan, also known as a single-close construction loan, is a good option to consider. And when you consider those options, there are some questions to ask that are a bit further down on most people’s “need-to-know” list but should be asked regardless.
Some don’t know to ask a few of these questions at first, and getting the answers early in your home loan journey could help you to save time and even money.
Initial Choices
A lot of people know that when choosing a construction loan you are required to pick a licensed contractor as well as a lender. Is it best to choose one yourself or use the suggestion of the lender or real estate agent if you are also buying land to build on.
But what happens if you find a contractor but the lender you want to use doesn’t do business in that “lending area”?
That may sound like a bit of a remote possibility to some. After all, a larger lender likely has a larger operating area with branches elsewhere, but not all lenders have the same “footprint”. Not being able to use the first choice of lenders might be an unexpected issue. It’s good to anticipate the possibility by asking questions of your selected lender ahead of time.
Loan Limits
Loan limits may vary depending on zip code, and you’ll need to know your loan limits when determining whether you need a conforming loan or a jumbo loan. Not all lenders are willing to issue a jumbo loan for construction so this is a detail you will want to sort out sooner, not later.
Draw Schedule
Some borrowers go into the single-close construction loan process with assumptions that don’t hold true when the transaction is underway. One of those assumptions is that home loan funds are “yours” to do with whatever you please.
But the reality is that you cannot use the money you get with a One-Time Close loan for any purpose except what is stated in the loan agreement.
You won’t get the excess in cash if the project comes in under budget, and you can’t access the loan funds yourself--the money is held in escrow until it is needed to pay for contractors, materials, etc. One-Time Close loan funds do not pass through the hands of the borrower.
When the construction phase of the loan begins, there may be a “draw schedule” that outlines the phases of the project and when “draws” or payments begin out of escrow. This schedule may accommodate phases like laying the foundation, building the frame of the home, installation of electrical and plumbing systems, etc.
The rules for draws may vary depending on the lender, you will need to discuss this detail with your loan officer to learn what may apply to your transaction.
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 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 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.
Some don’t know to ask a few of these questions at first, and getting the answers early in your home loan journey could help you to save time and even money.
Initial Choices
A lot of people know that when choosing a construction loan you are required to pick a licensed contractor as well as a lender. Is it best to choose one yourself or use the suggestion of the lender or real estate agent if you are also buying land to build on.
But what happens if you find a contractor but the lender you want to use doesn’t do business in that “lending area”?
That may sound like a bit of a remote possibility to some. After all, a larger lender likely has a larger operating area with branches elsewhere, but not all lenders have the same “footprint”. Not being able to use the first choice of lenders might be an unexpected issue. It’s good to anticipate the possibility by asking questions of your selected lender ahead of time.
Loan Limits
Loan limits may vary depending on zip code, and you’ll need to know your loan limits when determining whether you need a conforming loan or a jumbo loan. Not all lenders are willing to issue a jumbo loan for construction so this is a detail you will want to sort out sooner, not later.
Draw Schedule
Some borrowers go into the single-close construction loan process with assumptions that don’t hold true when the transaction is underway. One of those assumptions is that home loan funds are “yours” to do with whatever you please.
But the reality is that you cannot use the money you get with a One-Time Close loan for any purpose except what is stated in the loan agreement.
You won’t get the excess in cash if the project comes in under budget, and you can’t access the loan funds yourself--the money is held in escrow until it is needed to pay for contractors, materials, etc. One-Time Close loan funds do not pass through the hands of the borrower.
When the construction phase of the loan begins, there may be a “draw schedule” that outlines the phases of the project and when “draws” or payments begin out of escrow. This schedule may accommodate phases like laying the foundation, building the frame of the home, installation of electrical and plumbing systems, etc.
The rules for draws may vary depending on the lender, you will need to discuss this detail with your loan officer to learn what may apply to your transaction.
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 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 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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