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VA and FHA One-Time Close Construction Loans

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What To Know About Construction Loans Before You Apply


What To Know About Construction Loans Before You Apply
There are a lot of myths about home loans in general and a few pervasive ones about construction loans worth dispelling. What do you need to know when you commit to building your own home from the ground up?

You Don’t Need To Own Land Right Now

A One-Time Close construction loan can be used to buy land to build on as well as to pay for the construction. 

Newcomers to construction loans might assume owning land is the first requirement, but single-close loan rules for FHA and VA construction loans say any financially qualified borrower can buy land with the loan with the caveat that a construction plan must accompany the purchase. 

You cannot use a One-Time Close loan to buy undeveloped land without plans to build within a reasonable time.

Inspections

Some debate whether to have a brand-new home inspected. Some borrowers may be tempted to believe in the myth that a house just built should be and will be free of problems. 

But failing to get an inspection sets a homeowner up for disappointment later. When purchasing existing construction, you can’t get help from the VA or the FHA if you don’t get a home inspection and find defects after moving in.

A brand new home may sidestep that scenario with a builder’s warranty, but including an inspection as part of the process may help you spot potential problems with craftsmanship or other issues early in the process, making it easier to get corrections done than it would if you discovered them six months later.

Myths About Loan Approval

Some assume that because the VA or FHA backs a One-Time Close construction loan, it has the same credit requirements for loan approval as a manufactured home, a duplex, a condo, or other types. On paper this is true from the FHA and VA standpoint.

However, construction loans are riskier for the lender.

That does not translate to different FHA loan requirements (those stay the same), but the lender standards for construction loans may be higher than the VA/FHA minimums. This is permitted under loan rules for both government loan programs.

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)—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 Cabins, 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.
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Construction Loan Choices

When 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.

Expect The Unexpected With Your One-Time Close Loan

If you want to build a home from the ground up on land you own or buy in conjunction with the loan, you need a One-Time Close construction loan. Available as a VA or FHA option, the single-close construction loan makes it possible to build a home with plans and materials you approve.

Construction Loan Terms To Remember Before You Start

There are many industry terms unfamiliar to first-time home buyers, especially those looking for a One-Time Close construction loan. Knowing some of these terms in advance can help you make better decisions in the planning stages of your single-close loan. We examine some important construction loan terms below to help you better navigate the process.


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