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VA and FHA One-Time Close Construction Loans

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One-Time Close Construction Loans And The Draw Process


One-Time Close Construction Loans And The Draw Process
There are a variety of home loans that can be used for a variety of purposes. Getting the right loan is an important part of the journey toward home ownership. 

Did you know the loan used to build a home from the ground up is not the same as the one you use to buy an existing property with? You would not apply for a loan to buy an existing home in the suburbs when you want to build one from the ground up. The process is quite different.

They are even different from other loans where construction is needed, such as FHA 203(k) Rehabilitation loans which are specifically meant to help you buy an existing home and repair it. 

When you build a house with a One-Time Close construction loan, you will use the loan money for labor, inspections, materials, etc. but using that money means paying through an escrow account rather than from your own personal checking or savings account. The money is distributed from the lender to the contractor using a “draw” that may require furnishing an invoice or other proof of purchase for goods/services

What Is A Draw For A Construction Loan?

A draw is typically a payment from escrow to a builder or supplier. An invoice is submitted to the lender and the money is paid to the contractor or the retailer.

Construction loans may feature deposit payments and other expenses paid through an “initial draw” at the start of the project. 

There may be scheduled draws as the project moves forward (see below) and a final draw in which lenders may require submission of additional documentation including proof that the home has had all required compliance inspections and meets state/local code.

Each lender may have its own procedure for the initial and final draws, you’ll need to discuss this with a loan officer. State law may also dictate how escrow works in your transaction.

How Draw Schedules Work

Any construction loan plan should include a schedule for draws where appropriate. If you are doing major work there will be certain phases of the rehab process during which you’ll need to obtain contractors and suppliers to purchase materials from

But you may not pay immediately; instead, the construction project may be subject to a “Net 30” type of agreement where the payment is due within a specific amount of time such as 30 days for Net 30, 60 days for Net 60, etc. 

This is a common practice and it means that you will be able to secure certain goods and services right away, with the understanding that the future payment deadline is firm.

Will I Be Able To Request A Draw To Pay Myself?

Only those who are licensed general contractors may typically be allowed to do their own work on a construction loan--at least on paper with certain types of construction loans such as VA and FHA One-Time Close mortgages.

But you may find that what’s allowed on paper doesn’t necessarily translate to what a lender is willing to do; it’s smart to expect the lender will NOT let you build your own home yourself or with the help of friends and family. The short answer is that you should NOT expect a lender to let you build your own house and take draws to help you do that.

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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