One-Time Close Borrower Eligibility
The One-Time Close loan is a great option for first-time homebuyers looking for affordable options from the lack of existing homes on the market. But just like any other mortgage, there are some requirements that you, the borrower, are going to have to meet in order to be eligible for the One-Time Close Loan. All the regular guidelines for FHA and VA loans apply still apply, but there are some additional requirements as well.
The Importance of Credit Scores
As with all home mortgages, lenders set credit score requirements for the Single Close Loan. For FHA and VA, lenders typically require a minimum FICO score of 620 in the case of two borrowers, and 660 in the case of a single borrower.
Down Payment Requirements
The great thing about FHA and VA Single Close Loans is that borrowers can bypass the cash down payment requirement fully if they already own the land and have enough land equity to meet the minimum investment requirement for the loan. Value of the land as determined by the appraiser (or the original cost of the land, depending on length of time of ownership and type of loan) less any lien payoff owed on the land is used to determine any land equity the borrower may have. The land can even be gifted, in which case all the standard FHA or VA guidelines would apply. However, if the purchase of the land is being financed as part of the loan, the FHA requires a 3.5 percent cash down payment. Maximum Loan-to-Value on FHA mortgages is 96.5%, and 100% on VA loans. LTV is based on the lower of acquisition cost (land cost/value + construction contract) or appraised value.
About Property Guidelines
The FHA and VA all mandate that any home built and purchased with a One-Time Close loan must serve as the borrower's primary residence. If you're thinking about building a vacation home or investment property, this is NOT the loan for you! The Single Close loan can be used to construct new manufactured homes (excluding single wide homes), modular homes, and site-built homes, all of which must typically be one-units.
Understanding the Loan Term
On FHA, lenders typically offer 15- and 30-year fixed rate loans for the Single Close option and the construction term is outside of the permanent mortgage term. VA One-Time Close loan lenders offer a 30-year, fully amortizing mortgage, but the construction term is inside of the mortgage term, so borrowers must qualify for a 29-year loan.
To get ready for a construction loan, it's good to think ahead. Work on reducing debt-to-income ratios, avoid applying for new lines of credit, and pay close attention to your credit report to avoid delays because of errors, outdated information, or other problems. Prepare for the approval process as you would for any financial loan, and make sure to keep the lines of communication open with your lender and builder!
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March 21, 2023If you are building a home using a single-close mortgage, you likely already know the process is more complex than buying an existing home. That shouldn’t stop you from building the house you want, but there are critical mistakes to avoid when planning your home. How do you know you are ready to start building your home?
March 14, 2023Are you ready for a construction loan? There are some simple questions to ask if you are not sure. Building your own home on your own lot or on land you buy for the project is an important investment, and you want to ensure you have covered all the following topics before committing to a One-Time Close lender.
March 7, 2023In previous articles, we’ve noted that building a home is easier in some ways than buying an existing property and more complex in some other ways. But one thing these two processes have in common? They both include a need for the borrower to shop around for the right lender for the One-Time Close construction loan and the right terms and rates.
