What You Cannot Do With A Construction Loan
August 23, 2023
Using a One-Time Close construction loan to build a home from the ground up on your own lot can be a great experience.
You have more say over the final disposition of your new home than you would if you purchased existing construction, and everything installed in the home will be brand new.
But there are some limits to these loans you should know about before applying for the single-close construction loan.
One-Time Close Construction Loan Limitations
There are some things you can’t do with a typical single-close construction loan. For example, some lenders won’t approve the financing of a multi-unit property. If you seek an FHA, VA, or USDA single-close loan, you may typically be limited to a single-unit property.
You will also be expected to use the home built under any government-backed mortgage loan as your home address once the construction is finished. Investment properties are not allowed.
One-Time Close Credit Rules
While VA and FHA loans are more forgiving, credit-wise, than some conventional loans, your lender may require you to have higher FICO scores when building instead of buying. Knowing this when you are still planning the loan can be a major help.
Similarly, One-Time Close lenders are typically not inclined to approve a construction loan if you must rely on downpayment assistance. Expect to be asked to come up with your own downpayment funds without relying on outside help.
Property Types
Don’t expect to use a government-backed One-Time Close construction loan to build non-traditional housing.
The resale value of your finished property is a big deal, and if your home isn’t an easy sell because of its unique nature, you risk being stuck with a property you cannot get rid of. FHA and VA loan rules typically say no to tiny houses, barndominums, or other non-standard housing options. If you want to build, you may need to choose a more conventional floor plan.
One-Time Close Rules For Hiring Contractors And Builders
Don’t expect to do your own labor or provide your own team of gifted but amateur builders. Lenders will expect you to hire professionals to do the architecture, construction, and finishing of the property.
Some lenders may have preferred contractors. This can be a tricky issue to navigate, and regardless of where you find your builders, you need to vet them based on their work, local reputation, and whether there are any outstanding issues the company might be involved with that make them a risky choice.
Want More Information About One-Time Close Loans?
We have extensively researched 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 with 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 allow for single-family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes).
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 is an eligible veteran, 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 VA 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.
You have more say over the final disposition of your new home than you would if you purchased existing construction, and everything installed in the home will be brand new.
But there are some limits to these loans you should know about before applying for the single-close construction loan.
One-Time Close Construction Loan Limitations
There are some things you can’t do with a typical single-close construction loan. For example, some lenders won’t approve the financing of a multi-unit property. If you seek an FHA, VA, or USDA single-close loan, you may typically be limited to a single-unit property.
You will also be expected to use the home built under any government-backed mortgage loan as your home address once the construction is finished. Investment properties are not allowed.
One-Time Close Credit Rules
While VA and FHA loans are more forgiving, credit-wise, than some conventional loans, your lender may require you to have higher FICO scores when building instead of buying. Knowing this when you are still planning the loan can be a major help.
Similarly, One-Time Close lenders are typically not inclined to approve a construction loan if you must rely on downpayment assistance. Expect to be asked to come up with your own downpayment funds without relying on outside help.
Property Types
Don’t expect to use a government-backed One-Time Close construction loan to build non-traditional housing.
The resale value of your finished property is a big deal, and if your home isn’t an easy sell because of its unique nature, you risk being stuck with a property you cannot get rid of. FHA and VA loan rules typically say no to tiny houses, barndominums, or other non-standard housing options. If you want to build, you may need to choose a more conventional floor plan.
One-Time Close Rules For Hiring Contractors And Builders
Don’t expect to do your own labor or provide your own team of gifted but amateur builders. Lenders will expect you to hire professionals to do the architecture, construction, and finishing of the property.
Some lenders may have preferred contractors. This can be a tricky issue to navigate, and regardless of where you find your builders, you need to vet them based on their work, local reputation, and whether there are any outstanding issues the company might be involved with that make them a risky choice.
Want More Information About One-Time Close Loans?
We have extensively researched 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 with 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 allow for single-family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes).
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 is an eligible veteran, 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 VA 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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