Could Home Loan Reform Expand Your Construction Loan Options?
The appraisal is a process where the home is reviewed to ensure it meets minimum standards and meets state/local building codes. It’s also the way the lender establishes the fair market value of the property.
For a One-Time Close construction loan, the appraisal process works a bit differently than for existing construction property. But there is one thing both types of mortgage loans have in common--the use of comparables to help determine the appraised value of the home.
Comparables May Complicate Your Loan
The home you want is appraised on its own merits but also on how it measures up to the comparables. And that is one reason why you may find it hard to locate a single-close lender who offers a construction loan for a barndominium or a tiny house; there just aren’t enough of those comparables that may be used under current mortgage industry practices. Could appraisal reform change all that?
It is a question with an answer that remains to be seen, but in the meantime, some in the mortgage industry are already making moves to end bias or the appearance of it.
One company, Black Knight, started reviewing its appraisal process to identify bias; Black Knight upgraded their automated appraisal system to address the issue. Comparables, as part of the appraisal process, may involve viewing photos of the sale property compared to other properties, for example.
The National Association of Realtors reports that an agency called the Appraisal Institute “recently added a five-hour seminar focused on addressing unconscious bias, updated its code of ethics, and created a practice guide affirming that appraisers should ignore ethnographic and other personal characteristics in property appraisals.”
And lest we think that’s just the actions and policies at a single company, it should be known that Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency have all identified racial bias in the purchase and refinance process. Black Knight’s move should be seen as the first of many industry changes to the appraisal process in general.
What It Means For Those Who Want To Build A Home
Appraisal reform brings the potential for other changes. Could the changes to how the industry approaches the use of comparables make it possible to build a non-traditional type property like a tiny house, barndominium, or solar-powered home?
As mentioned above, many single-close lenders won’t allow these types of properties because of the comparables issue--there just aren’t enough tiny homes or barndominiums in the housing market to make a fair valuation--as the rules are written now. Changes to those rules may also change the way lenders approach a kit home, solar-powered home, etc.
FHA, VA, and USDA: One-Time Close Loans
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, including but not limited to: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes, Dome Homes, Bermed Earth Sheltered Homes, Tiny Homes, Accessory Dwelling Units, or A-Framed Homes.
All known FHA/VA One-Time Close Lenders known to our company will not allow a borrower to act as their own contractor, whatsoever. There cannot be self-builds, relative builds, or employer builds.
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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.
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May 21, 2025A One-Time Close (OTC) residential construction loan is a specialized financing product that combines the financing for a new home's construction phase and the permanent mortgage into a single loan with just one closing. Unlike other methods that require separate loans for building and then for long-term ownership, the OTC loan streamlines the entire process, offering a simplified and often more cost-effective approach to building a custom home than two-close construction loans.
April 29, 2025If you know about regular FHA loans for buying existing homes, the FHA OTC loan for building shares many similarities, but with some key construction-specific twists. FHA One-Time Close mortgages are backed by the Federal Housing Administration. This government insurance protects lenders if a borrower can't pay, allowing lenders to offer loans with easier qualification rules. This makes it a good option for first-time buyers or those who might find conventional loans harder to get.
April 16, 2025There are two popular ways to finance new home construction using a single loan: the FHA One-Time Close (OTC) loan and a similar Conventional single-close loan. What’s a single-close mortgage? Think of it as an "all-in-one" loan for building a house. Instead of getting one loan for the construction phase and then another separate mortgage loan once the home is finished, a single-close loan combines everything into one package. It covers land, materials, labor, permits, and builder fees.
