How Construction Loans Differ From Existing Construction Loans
September 6, 2022
What makes a One-Time Close construction loan different from a purchase loan? Besides the obvious, there are some important differences you should know about in order to make the most informed decision about the house you want. Some are convinced early in the process they want to build rather than buy. Others aren’t so sure.
Building Versus Buying: Time Considerations
Building your house from the ground up takes time. You will need to find contractors, get permits, and wait out the construction phase of the loan until it’s time to move in after the work is deemed complete.
Buying existing construction is a better option for those who don’t or can’t wait through these processes. Others don’t have an issue waiting out the actual construction but want to build in housing markets where there is a potentially long waiting period required to obtain the necessary permits.
Some choose to buy existing construction in housing markets like California because the wait for permits is too long for them.
Buying Existing Construction: Down Payment Issues
If you buy someone else’s home, you may be allowed to buy using down payment assistance from a state or local program.
This is not necessarily true with a construction loan where the lender may not approve construction loans for borrowers who can’t come up with their own down payment. Building a house is a higher risk for the lender, so the down payment issue becomes key.
Building Your Own Home: Land Issues
Buying a home that is already built means you buy the land and the house together. If you build a home, you will either need to use land you already own or that you buy in conjunction with the loan. Buying land for the construction project is an expense some don’t think about at first, and for those who already own land, it may be possible to use land equity as part of your down payment.
Other Issues
Construction loans do NOT differ from existing construction loans in that you will be required to use escrow for things like paying property taxes. Construction loans use escrow more extensively as you will need to have the ability to pay contractors using loan funds. There is no “pass-through” with the borrower for these loan funds to the contractor--the money is paid directly to the contractor from escrow.
No two home loans are exactly alike; it’s smart to talk to several prospective lenders to get an idea of your options, how things are priced in your housing market, the typical length of completion for a construction loan in your area, etc.
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 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). 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.
Building Versus Buying: Time Considerations
Building your house from the ground up takes time. You will need to find contractors, get permits, and wait out the construction phase of the loan until it’s time to move in after the work is deemed complete.
Buying existing construction is a better option for those who don’t or can’t wait through these processes. Others don’t have an issue waiting out the actual construction but want to build in housing markets where there is a potentially long waiting period required to obtain the necessary permits.
Some choose to buy existing construction in housing markets like California because the wait for permits is too long for them.
Buying Existing Construction: Down Payment Issues
If you buy someone else’s home, you may be allowed to buy using down payment assistance from a state or local program.
This is not necessarily true with a construction loan where the lender may not approve construction loans for borrowers who can’t come up with their own down payment. Building a house is a higher risk for the lender, so the down payment issue becomes key.
Building Your Own Home: Land Issues
Buying a home that is already built means you buy the land and the house together. If you build a home, you will either need to use land you already own or that you buy in conjunction with the loan. Buying land for the construction project is an expense some don’t think about at first, and for those who already own land, it may be possible to use land equity as part of your down payment.
Other Issues
Construction loans do NOT differ from existing construction loans in that you will be required to use escrow for things like paying property taxes. Construction loans use escrow more extensively as you will need to have the ability to pay contractors using loan funds. There is no “pass-through” with the borrower for these loan funds to the contractor--the money is paid directly to the contractor from escrow.
No two home loans are exactly alike; it’s smart to talk to several prospective lenders to get an idea of your options, how things are priced in your housing market, the typical length of completion for a construction loan in your area, etc.
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 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). 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.
