One-Time Close Borrower Eligibility
The One-Time Close loan is a great option for first-time homebuyers looking for affordable options from the lack of existing homes on the market. But just like any other mortgage, there are some requirements that you, the borrower, are going to have to meet in order to be eligible for the One-Time Close Loan. All the regular guidelines for FHA and VA loans apply still apply, but there are some additional requirements as well.
The Importance of Credit Scores
As with all home mortgages, lenders set credit score requirements for the Single Close Loan. For FHA and VA, lenders typically require a minimum FICO score of 620 in the case of two borrowers, and 660 in the case of a single borrower.
Down Payment Requirements
The great thing about FHA and VA Single Close Loans is that borrowers can bypass the cash down payment requirement fully if they already own the land and have enough land equity to meet the minimum investment requirement for the loan. Value of the land as determined by the appraiser (or the original cost of the land, depending on length of time of ownership and type of loan) less any lien payoff owed on the land is used to determine any land equity the borrower may have. The land can even be gifted, in which case all the standard FHA or VA guidelines would apply. However, if the purchase of the land is being financed as part of the loan, the FHA requires a 3.5 percent cash down payment. Maximum Loan-to-Value on FHA mortgages is 96.5%, and 100% on VA loans. LTV is based on the lower of acquisition cost (land cost/value + construction contract) or appraised value.
About Property Guidelines
The FHA and VA all mandate that any home built and purchased with a One-Time Close loan must serve as the borrower's primary residence. If you're thinking about building a vacation home or investment property, this is NOT the loan for you! The Single Close loan can be used to construct new manufactured homes (excluding single wide homes), modular homes, and site-built homes, all of which must typically be one-units.
Understanding the Loan Term
On FHA, lenders typically offer 15- and 30-year fixed rate loans for the Single Close option and the construction term is outside of the permanent mortgage term. VA One-Time Close loan lenders offer a 30-year, fully amortizing mortgage, but the construction term is inside of the mortgage term, so borrowers must qualify for a 29-year loan.
To get ready for a construction loan, it's good to think ahead. Work on reducing debt-to-income ratios, avoid applying for new lines of credit, and pay close attention to your credit report to avoid delays because of errors, outdated information, or other problems. Prepare for the approval process as you would for any financial loan, and make sure to keep the lines of communication open with your lender and builder!
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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.
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.
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.