Construction Loan Approval Rules For Employment And Income
June 7, 2024
If you want to build your own home, it’s good to know that doing so means taking some extra time to work on your credit and employment history before applying. Construction loans are harder to qualify for with income and employment for some, what do you need to know before you start the process? We examine some key points.
FHA Home Loan Rules For Qualifying Employment
The first thing to know about building a home on your own lot using a construction loan is that the lender must review the nature of your employment, how long you have been working, and whether your employment meets the lender’s standards.
Your lender typically must verify at least 24 months of employment for VA and FHA single-close construction mortgages. The borrower must also explain any gaps in employment.
Those two years do not have to be with the same company, but in typical cases, the lender wants to see a full 24 months in the job market. And because construction loans are riskier for the lender overall, meeting the bare minimum standard in this area may not be enough.
HUD 4000.1, the FHA loan guidebook for lenders, notes that the 24-month requirement may be flexible in cases where the applicant is in a highly skilled profession. VA home loan rules have a similar provision.
Ask your lender about two years of job history requirement for loan approval if you are trained as a pilot, doctor, nurse, or any other highly skilled profession.
If you recently switched the nature of your employment (salary to freelance, for example), you may be required to have a minimum amount of time in the new career before the loan can be approved. Discuss this scenario with a lender early in the home loan process if it applies to you.
Qualifying Income
The applicant’s monthly income must be stable and reliable for construction loan approval. A one-time close lender offering VA or FHA-backed construction loans may not consider income earned from being a reseller on eBay or a craft seller on Etsy.
You also may not have income counted from recent jobs you landed until you’ve had enough time with that company.
Your lender won’t include certain benefit payments as income. The GI Bill is one of those. It features a housing stipend for those using it to attend school. Some are tempted to try to include this payment in their verifiable income.
However, the GI Bill housing stipend benefit is not considered “likely to continue” to approve a one-time close loan. That’s because the student is only entitled to 36 months of that benefit, and it will not continue.
Income From Renters
Some borrowers think about building a multi-unit home with a plan to rent out the unused living units. While this is allowed under government-backed construction loan rules, many One-Time Close lenders don’t approve loans for multi-unit properties.
Depending on the lender and other variables, you may find that a single-unit home is the only option.
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 who 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).
In addition, 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.
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.
FHA Home Loan Rules For Qualifying Employment
The first thing to know about building a home on your own lot using a construction loan is that the lender must review the nature of your employment, how long you have been working, and whether your employment meets the lender’s standards.
Your lender typically must verify at least 24 months of employment for VA and FHA single-close construction mortgages. The borrower must also explain any gaps in employment.
Those two years do not have to be with the same company, but in typical cases, the lender wants to see a full 24 months in the job market. And because construction loans are riskier for the lender overall, meeting the bare minimum standard in this area may not be enough.
HUD 4000.1, the FHA loan guidebook for lenders, notes that the 24-month requirement may be flexible in cases where the applicant is in a highly skilled profession. VA home loan rules have a similar provision.
Ask your lender about two years of job history requirement for loan approval if you are trained as a pilot, doctor, nurse, or any other highly skilled profession.
If you recently switched the nature of your employment (salary to freelance, for example), you may be required to have a minimum amount of time in the new career before the loan can be approved. Discuss this scenario with a lender early in the home loan process if it applies to you.
Qualifying Income
The applicant’s monthly income must be stable and reliable for construction loan approval. A one-time close lender offering VA or FHA-backed construction loans may not consider income earned from being a reseller on eBay or a craft seller on Etsy.
You also may not have income counted from recent jobs you landed until you’ve had enough time with that company.
Your lender won’t include certain benefit payments as income. The GI Bill is one of those. It features a housing stipend for those using it to attend school. Some are tempted to try to include this payment in their verifiable income.
However, the GI Bill housing stipend benefit is not considered “likely to continue” to approve a one-time close loan. That’s because the student is only entitled to 36 months of that benefit, and it will not continue.
Income From Renters
Some borrowers think about building a multi-unit home with a plan to rent out the unused living units. While this is allowed under government-backed construction loan rules, many One-Time Close lenders don’t approve loans for multi-unit properties.
Depending on the lender and other variables, you may find that a single-unit home is the only option.
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 who 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).
In addition, 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.
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.
See Your Credit Scores From All 3 Bureaus
Do you know what's on your credit report?
Learn what your score means.
Articles, Updates, and Guidelines
FHA Single Close Construction Loans
July 26, 2024The Federal Housing Administration (FHA) offers qualifying borrowers the option to build a home from the ground up using a Single Close FHA Construction Loan. This program, also known as a One-Time Close construction mortgage, allows borrowers to finance the construction of a new home and convert it into a permanent mortgage with just one closing, streamlining the often complex process of building a house.
The VA Construction Loan Timeline
July 19, 2024VA One-Time Close construction loans help qualifying veterans build homes they will own and occupy once the construction phase is complete. One-time close loans, or construction-to-permanent loans, combine construction and permanent financing into a single closing procedure. VA One-Time Close mortgages have no VA-required down payment or mortgage insurance, making them attractive options for qualifying borrowers.
Construction Loan Choices
July 12, 2024When planning a construction loan, you have many options. For example, do you want to buy land with a loan to build the house? Or do you already own a parcel suitable for the construction project? There are many other choices to make with home loans, but some don’t necessarily apply to construction mortgages.
