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FHA loans are one of the best options for young, first-time home buyers who have not had as much time to save for a large down payment or establish a high credit score.

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FHA One-Time Close Construction Loans: Issues to Consider

FHA One-Time Close Construction Loans: Issues to Consider
What do you need to know about FHA One-Time Close construction loans? This type of mortgage combines a construction loan and the mortgage itself into a single application, loan approval, and closing day.

It’s a great option to consider if you want to build your dream home on your own land instead of buying someone else’s already-lived-in house. FHA One-Time Close mortgages are also referred to as single-close construction loans--you’ll see these terms used interchangeably.

Down Payment Factors

Do you already own the land you plan to build your home on? If so you may be able to use some of your land equity for the down payment where applicable. You’ll want to discuss this option with your lender early in the process.

FHA One-Time Close construction loans have an advantage over conventional mortgages due to the low down payment requirement, but lender terms also apply and you’ll want to know what kind of down payment to get ready for as far in advance as you can.
That’s one reason why it’s smart to compare lenders based on the down payment issue as well as other factors. Can a conventional lender beat an FHA lender’s down payment rules?

Not Property Types Qualify

FHA lenders don’t offer all home loan products available in the FHA Single-Family Home Loan program, and not all lenders approve home loans for all housing types.

For example, properties having few comparables in the area, may be harder to get construction loan approval for. This is typically true of tiny houses, barndominiums, or other unique properties.

Borrowers get the best results in their single-close construction loan journey when  looking for a one-time close lender so you can build a single-family, one-unit home described in the mortgage industry as a “stick-built” home.

Third Party Labor Required

Typically you will find participating FHA lenders unwilling to approve a single-close construction loan for people who want to act as their own contractor. Borrowers should not expect to build their own home with their own tools, and you likely won’t be allowed to use family and friends to help out, either.

 Construction loans require licensed builders and specific completion timelines. Lenders know what can potentially happen with a self-build and they seek to avoid such complications. Expect to use licensed professionals only. You’ll need to compare contractors in the same way you shop around for a lender; review online reputation, customer feedback on the official site, and any peer-review sites that may mention your contractors such as Angi.com.


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FHA Loan Articles

When not to Consider Refinancing a Home

There are plenty of reasons to delay plans to refinance a home. One reason has made big headlines. When borrowers face higher interest rates than originally approved for, that is a good reason to wait to refinance.

How FHA Construction Loan Draw Disbursements Work

When you are approved for an FHA One-Time Close Construction loan, you get a single loan that pays for both the costs to build the house, and serves as the mortgage. One application, one approval process, and one closing date.

Mortgage Rate Predictions for 2024

In the last days of November 2023, mortgage loan rates flirted with the 8% range but have since backed away, showing small but continued improvement. What does this mean for house hunters considering their options to become homeowners soon?

Is It Cheaper to Buy a Home With an FHA Loan or to Rent?

In May 2023, USA Today published some facts and figures about the state of the housing market in America. If you are weighing your options for an FHA mortgage and trying to decide if it’s cheaper to buy or rent, your zip code may have a lot to do with the answers you get.

Why Do FHA Loans Have Borrowing Limits?

FHA loan limits serve as a crucial mechanism to balance financial sustainability, regional variations in housing costs, and the agency's mission to promote homeownership, particularly for those with limited financial resources.

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