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Construction Loans And The Changing Nature Of The Housing Market


Construction Loans And The Changing Nature Of The Housing Market
Are you seeing headlines about the state of today's housing market and wondering if now is the right time to build a home? You are not alone; many have watched mortgage rates rise in the last year and wonder how long conditions will remain tough for those who want to build a new house on their own lot.

News outlets such as CNBC are reporting lower mortgage rates as 2022 begins winding down.  After watching rates break the 7% barrier in the last quarter, you may have noticed in recent weeks those rates are beginning to change for the better.

Not all at once, and certainly not enough to convince some borrowers to pull the trigger on a One-Time Close construction mortgage, but the signs are there. We may see some improvement in 2023 beyond what we've witnessed so far.

Some are not able to wait to build their dream home. But others may do well to bide their time a short while until conditions improve further.

Why? Have you already saved up a down payment? You cannot use down payment assistance on many construction loans, and if you aren't quite there yet you'll need to wait until your down payment is no longer a question. And if you are not sure what kind of loan you need, the down payment question may be more complicated.

For example, VA construction loans feature no VA-required down payment. FHA construction loans require a minimum of 3.5%. And depending on the lender you may find some conventional construction loans requiring 20% down.

Making sure you have both a down payment and that you have worked on your credit long before application day? Both are key to a good loan experience. If you are able to wait a little longer to prepare your finances ahead of your loan, you get much closer to loan approval.

Some borrowers seem to agree with us on waiting a bit to ensure you are truly ready. CNBC reported that demand was lower at the end of November 2022 overall compared to this time last year...if you are tempted to wait a bit longer to see if conditions improve, you are not alone.

However, for borrowers who can’t wait to purchase a house, it means getting creative with loan planning. You could begin a construction loan now and consider refinancing once rates have fallen more in 2023 assuming they do so; there are many variables at work that may influence that in the future.

For purchase loans, some buy when rates are higher using an Adjustable-Rate Mortgage, which may feature a lower introductory rate than the going rate for 30-year fixed-rate mortgages. But construction loans don't feature this option--there is an adjustable rate during the construction phase, but the mortgage itself is typically a 30-year fixed-rate loan.

Wait for next year or start now? That's a choice only the borrower can make.

If you choose to act now, it’s important to have already taken steps to prepare your credit and your finances. If you choose to wait, maintaining the patterns of responsible credit use you have already been working on may be an important part of maintaining or improving FICO scores.

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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