What You Should Know About One-Time Close Loan Funds
August 18, 2022
There are plenty of important questions first-time construction loan borrowers should be asking in the planning stages of their home loan. One group of questions you should be asking? How loan funds are handled.
This is important because if you proceed with bad assumptions while planning your One-Time Close construction loan, you run the risk of having to revise those plans later down the line. For example, some borrowers might assume they have unrestricted access to loan money during the construction phase.
Such an assumption would be an easy one to make when you’re just starting out. But what is the reality? If you are making plans for cash you assume may be coming to you as part of a home loan transaction, you’re likely to be disappointed.
How Construction Loans Work
When you apply for a construction loan, you apply for the amount of money needed to build the home on your own lot or on land you acquire for the project. Your loan will also include any allowed expenses you choose to finance such as an FHA Up-Front Mortgage Insurance Premium if you’re using an FHA One-Time Close loan.
The loan money goes into escrow, and contractors, labor, and materials are paid for with “draws” from the escrow account. At no time does the borrower get access to these funds.
Loan Funds Are Controlled
The borrower is not given access to the escrowed money, which means that if you were thinking about using any surplus home loan money in other areas you will need to make other plans.
The borrower cannot use home loan funds, and the only money paid to a borrower at closing time on a single-close construction mortgage comes in the form of a refund for something paid for in cash that was later financed into the loan.
This is also another reason why borrowers are typically not permitted to act as their own contractors for single-close construction loans. It keeps things simple, eliminates the potential for misuse of loan funds, and ensures that the construction phase of the loan stays on a specific schedule.
Under-Budget One-Time Close Construction Loans
Some borrowers at this stage in the conversation think they have found a loophole; what if the construction loan was actually too much loan for the project? If the construction comes in under budget, does the borrower get the excess loan funds? No, the borrower cannot cash out unused loan funds. The same rules apply--no unrestricted cash to the borrower is permitted.
Borrowers who want cash out on their loan transactions should look to cash-out refinancing, but for purchase and construction loans, the loan you get is meant to cover the specific dollar amount needed for the purchase and any allowed add-ons to the loan. No cash back is possible.
Want More Information About One-Time Close Loans?
We have done extensive research on 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 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). 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.
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 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.
This is important because if you proceed with bad assumptions while planning your One-Time Close construction loan, you run the risk of having to revise those plans later down the line. For example, some borrowers might assume they have unrestricted access to loan money during the construction phase.
Such an assumption would be an easy one to make when you’re just starting out. But what is the reality? If you are making plans for cash you assume may be coming to you as part of a home loan transaction, you’re likely to be disappointed.
How Construction Loans Work
When you apply for a construction loan, you apply for the amount of money needed to build the home on your own lot or on land you acquire for the project. Your loan will also include any allowed expenses you choose to finance such as an FHA Up-Front Mortgage Insurance Premium if you’re using an FHA One-Time Close loan.
The loan money goes into escrow, and contractors, labor, and materials are paid for with “draws” from the escrow account. At no time does the borrower get access to these funds.
Loan Funds Are Controlled
The borrower is not given access to the escrowed money, which means that if you were thinking about using any surplus home loan money in other areas you will need to make other plans.
The borrower cannot use home loan funds, and the only money paid to a borrower at closing time on a single-close construction mortgage comes in the form of a refund for something paid for in cash that was later financed into the loan.
This is also another reason why borrowers are typically not permitted to act as their own contractors for single-close construction loans. It keeps things simple, eliminates the potential for misuse of loan funds, and ensures that the construction phase of the loan stays on a specific schedule.
Under-Budget One-Time Close Construction Loans
Some borrowers at this stage in the conversation think they have found a loophole; what if the construction loan was actually too much loan for the project? If the construction comes in under budget, does the borrower get the excess loan funds? No, the borrower cannot cash out unused loan funds. The same rules apply--no unrestricted cash to the borrower is permitted.
Borrowers who want cash out on their loan transactions should look to cash-out refinancing, but for purchase and construction loans, the loan you get is meant to cover the specific dollar amount needed for the purchase and any allowed add-ons to the loan. No cash back is possible.
Want More Information About One-Time Close Loans?
We have done extensive research on 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 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). 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.
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 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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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.
