Important Differences Between Construction Loan Types

There are many options when you are deciding on a construction loan. Some One-Time Close government-backed mortgages might seem to have identical features compared to their conventional counterparts, but the differences can be important.

How much do you know about the features of a conventional One-Time Close mortgage versus the equivalent offered by the FHA?

FHA Single-Close Mortgages Compared To Conventional Construction Loans

One major difference between FHA and other construction loans? The downpayment.

FHA mortgages for all purchases typically require a minimum of 3.5% down. A higher down payment is required for borrowers who don't meet the FHA minimum FICO score standards. Where construction loans go, these borrowers may not qualify with the lender due to higher credit requirements for single-close loans in general.

In typical cases, compare the FHA minimum down payment to the potential 5% to 20% down requirements on a conventional home loan for existing construction. For conventional construction loans, you may find that 20% down is a typical lender requirement.

What about zero-down loans from the VA and USDA? The only catch with those no-money-down government-backed mortgages is that they are offered to military members in the case of VA loans or those with a demonstrated financial need in the case of USDA mortgages.

FHA One-Time Close Loans Versus Conventional One-Time Close Loans

One big difference between FHA loans in general and conventional mortgages might not be significant...at first.  But once your loan has closed, and you have owned the home for a while, you might consider refining the loan.

Did you know FHA mortgages have rules forbidding the lender to charge an early payoff penalty for refinancing the loan or any other form of early payoff? This is worth noting for those who build property knowing they want to refinance later.

Seller Concessions

FHA loans and conventional mortgages both include the ability to negotiate for seller concessions. Here is what you need to know about these concessions:

• FHA mortgages allow the seller to contribute up to 6% of the price of the home. 
• Conventional loans have percentages that may vary depending on the amount of the loan and the amount of your down payment. For example, those paying 10% down may be allowed to negotiate a seller concession of up to 3%. 
• Depending on the lender and other variables, you may be able to reach the allowable FHA 6% seller concession on a conventional loan if you pay between 10% and 25% down.

If you are building a home and not buying an existing property, what is the point of reviewing your seller concession options? Why mention them here?

Because not all borrowers own land at the start of their One-Time Close construction loan journey, some must purchase land in conjunction with the loan.

Since a seller concession can be used to pay for property taxes, title searches, recording fees, and other costs, you may be able to negotiate a concession on purchasing the land you need for the construction loan.

Ask a loan officer about this option in the planning stages if you are unsure about this issue. State and local laws may play a part in how much you can negotiate in such cases.

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 prohibited 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.