One-Time Close Loans | FHA, VA, and USDA
Learn all about the VA, USDA, and FHA versions of the One-Time Close Loan.

One-Time Close loans come with a set of closing costs. Many of these costs are detailed in the builder's Construction Contract.

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VA Loan - One-Time Close Construction Loan
FHA Loan - One-Time Close Construction Loan
USDA Loan - One-Time Close Construction Loan

Understanding Your Loan Costs

As a buyer, it makes sense that your number one question would be, "How much is this going to cost me?" You'll see many costs detailed in the Construction Contract between you and your builder, and then some more on the Loan Estimate that you receive from your lender. It's important that you understand what all those numbers represent.

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"As the name suggests, the One-Time Close loan comes with one set of closing costs that usually fall between 2 and 5 percent of the total price."

What Are Soft Costs?

Beaver helps you understand your OTC loanSoft costs include any and all costs that are the builder's responsibility. These are not part of the actual construction, but necessary for facilitating it, such as permit fees, engineering fees, architectural fees, inspection fees, construction financing costs, and construction interest.

What Are Hard Costs?

Hard costs are the tangible costs necessary for the actual construction of the home, which includes all materials and labor costs.

Allowances

Funds included in the construction budget, called allowances, are allocated for anything that will be added to the house in the future. This can include flooring, fixtures, and cabinetry.

Contingency Reserve

Some Lenders may add a contingency reserve to the builder's total, usually around 10 percent. Other lenders leave it up to the builder and borrower to determine an agreeable amount for contingency to be included in the Construction Contract. This is meant as padding in the budget in the case of unforeseen costs or upgrades that might come up during construction. Any unused portion of this contingency becomes a principal reduction to the borrower's permanent loan when construction is complete.

Closing Costs

The amount you pay in closing costs may vary according to the lender. These can include the usual fees that come with a mortgage, such as application fees, appraisal fees, and credit reports. Closing costs amount to approximately 2 to 5 percent of the purchase price, so it's a good thing you only have to pay them once with the Single Close Loan!

Interested Party Contributions

Many FHA, VA, and USDA mortgage transactions can be structured to have Interested Party Contributions, sometimes referred to as Seller Concessions. Using these can allow the closing costs/prepaids to be financed into the loan. For example, on an FHA loan where a 3.5 percent down payment is required, assuming the appraisal supports the loan amount needed to cover the costs, the Construction Contract can be structured to include Contributions from the Builder for the borrower's closing costs/prepaids.

Structuring the loan in this manner allows the borrower to invest only 3.5 percent of the acquisition cost, otherwise, the borrower would have to invest that, plus their closing costs/prepaids. The seller can also contribute towards closing costs/prepaids, but the total contributions from all interested parties cannot exceed 6 percent of the acquisition cost on FHA loans.

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Articles, Updates, and Guidelines
OTC articles
One-Time Close Mortgages: Fact and Fiction

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.

FHA/HUD Update New Construction Inspection Rules

In 2020, the FHA and HUD announced pending changes to the FHA Single-Family Home Loan Lender’s Handbook, HUD 4000.1. This was due to policy alterations in 2018 and 2019 which required the FHA and HUD to overhaul portions of HUD 4000.1 to accommodate the modified rules.

Home Loan Options In 2021: Construction Loans and More

If you are giving serious thought to becoming a homeowner in 2021 you have picked a very good time to explore your options. FHA loan limits are higher in 2021 than they were in most areas during 2020, and there are options including the FHA One-Time Close construction mortgage.


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