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

Borrowers can bypass the cash down payment requirement if they already own the land and have enough equity to meet the minimum requirements.

- Build a Home on Your Own Lot -
VA Loan - One-Time Close Construction Loan
FHA Loan - One-Time Close Construction Loan

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.

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"As with any mortgage, there are certain eligibility requirements that need to be met to qualify for the Single Close Loan, whether it's by the FHA or VA."

Down Payment Requirements

Beaver talks about OTC eligibility 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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Articles, Updates, and Guidelines
OTC articles
Pros And Cons Of Building A Home

Is it smarter to build a home or buy one? In late 2022 some borrowers are asking that question, faced with rising interest rates, a lack of inventory, and high prices. What are the pros and cons of building your own home on your own lot with a One-Time Close mortgage?

Things To Know Before You Commit To A Lender

If you are planning to build a house with a single-close construction loan, there are a few questions you should ask before you commit to working with a construction lender. You want to know a few things about that financial institution before moving forward.

Could Home Loan Reform Expand Your Construction Loan Options?

The federal government is considering ways to reduce bias in the home-buying process. And one area in particular being scrutinized? Appraisals. 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.


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