How FICO Scores Affect One-Time Close Loan Approvals
May 1, 2022
One-Time Close loans are offered to qualified home buyers (first-time buyers or experienced homeowners) who want to build a home on their own land. One-Time Close (OTC) mortgages allow you to build from the ground up instead of buying an existing home.
For FHA and VA One-Time Close loans, the government backs the mortgage loan which gives more justification for loan approval by the lender. The FHA and VA make it easier to extend credit compared to the higher FICO score requirements of some conventional loans.
FICO Score Requirements For One-Time Close Mortgages
VA One-Time Close mortgages have no VA-specified FICO score ranges--those requirements are left up to the lender.
FHA loan rules technically permit FICO scores between 500 and 579, but with a higher down payment required. Maximum financing is available for borrowers with FICO scores higher than 580. A down payment is still required, but is lower--only 3.5% compared to the 10% down required of those with FICO scores between 500 and 579.
These are FHA minimum requirements, but all known lenders at this time require a "middle score" from the 3 credit bureaus of at least 620 or better. This is permitted by FHA loan rules as long as those higher requirements are in accordance with federal law.
Loan Approval FICO Scores
Published sources indicate that FICO scores of 620 or better are typical for participating lenders. Home loans are often approved at FICO scores of 680 or better. So why does the FHA say one thing when the lender has higher requirements? Because the FHA standard is the minimum, the baseline.
The lender may have a more strict standard. It’s not always the case, either, which is why it pays to shop around for a construction loan.
It’s not as confusing when you recognize that other factors can go into loan denial that have nothing to do with FICO scores.
A high debt-to-income ratio, for example, may be an issue that keeps an otherwise qualified FHA loan applicant from getting loan approval. The same goes for borrowers who technically have FICO scores within the range the lender wants, but have issues on their credit history such as a bankruptcy, unresolved federal debt, judgments, etc.
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.
For FHA and VA One-Time Close loans, the government backs the mortgage loan which gives more justification for loan approval by the lender. The FHA and VA make it easier to extend credit compared to the higher FICO score requirements of some conventional loans.
FICO Score Requirements For One-Time Close Mortgages
VA One-Time Close mortgages have no VA-specified FICO score ranges--those requirements are left up to the lender.
FHA loan rules technically permit FICO scores between 500 and 579, but with a higher down payment required. Maximum financing is available for borrowers with FICO scores higher than 580. A down payment is still required, but is lower--only 3.5% compared to the 10% down required of those with FICO scores between 500 and 579.
These are FHA minimum requirements, but all known lenders at this time require a "middle score" from the 3 credit bureaus of at least 620 or better. This is permitted by FHA loan rules as long as those higher requirements are in accordance with federal law.
Loan Approval FICO Scores
Published sources indicate that FICO scores of 620 or better are typical for participating lenders. Home loans are often approved at FICO scores of 680 or better. So why does the FHA say one thing when the lender has higher requirements? Because the FHA standard is the minimum, the baseline.
The lender may have a more strict standard. It’s not always the case, either, which is why it pays to shop around for a construction loan.
It’s not as confusing when you recognize that other factors can go into loan denial that have nothing to do with FICO scores.
A high debt-to-income ratio, for example, may be an issue that keeps an otherwise qualified FHA loan applicant from getting loan approval. The same goes for borrowers who technically have FICO scores within the range the lender wants, but have issues on their credit history such as a bankruptcy, unresolved federal debt, judgments, etc.
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.
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