One-Time Close Loan
The One-Time Close loan is a program made for borrowers constructing their home from the ground up. The FHA’s One-Time Close loans lets you combine financing for the lot purchase, construction, and permanent mortgage into a single loan with one closing (hence the name). This kind of loan wraps up the financing and closing procedures into one mortgage with all the benefits of an FHA loan product.
How it Works
The One-Time Close loan (also called a construction/permanent mortgage) process involves three main parties, the lender, borrower, and builder. It begins with the borrower being pre-approved by a lender and then securing a builder to construct the property. This builder will need to be approved by the lender as well.
Borrower’s may already own the plot of land on which the home will be built, but if not, the builder and borrower go through the process of site selection. Specific plans will be finalized detailing the build, including exterior drawings, dimensions, and materials to be used. These specifications are also used for the professional appraiser’s report which determines the house’s value (subject to completion), since there is no physical property to appraise—yet!
The builder and borrower create a Construction Contract; an agreement between both parties that outlines the project, the cost of building, and the construction timeframe. The lender is then given a cost breakdown needs by the builder with the total matching that on the Construction Contract. Upon reviewing the construction plans and costs, the lender structures the loan and creates a draw schedule. This acts as a timetable according to which funds are disbursed to the builder.
Finally, it’s time for the one-time closing. The borrower provides the down payment if the land is not owned outright, in which case there is no down payment requirement. Once closing is complete, construction on the new property begins. The borrower is not liable for any payments until the construction on their home is complete. The loan converts to a permanent mortgage and works just like any other home loan.
Benefits of the FHA One-Time Close Loan
The FHA’s One-Time Close Loan is becoming a popular loan option for a bunch of reasons.
- A single closing saves you time and money. You end up paying a single set of closing costs and there is no re-qualification process to go through when the loan converts to a permanent mortgage.
- If you don’t already own the land, you get to take advantage of the FHA’s low, 3.5% down payment requirement.
- Once you close on your loan, the interest rate is locked in. That means you won’t be subject to paying a higher rate at the end of the construction period when your permanent loan goes into effect.
Want More Information About One-Time Close Loans?
One-Time Close Loans are available for FHA, VA, and USDA Mortgages. These loans also go by the following names: 1 X Close, single-close loan, or OTC loan. This type of loan allows you to finance the purchase of the land along with the construction of the home. You can also use land that you own free and clear or has an existing mortgage.
We have done extensive research on the FHA (Federal Housing Administration), the VA (Department of Veterans Affairs) and the USDA (United States Department of Agriculture) 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 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.
FHA.com / FHALoan.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, VA and USDA One-Time Close Construction Program only allows for single family dwellings (1 unit) - and NOT for multi-family units (no duplexes, triplexes or fourplexes). You CANNOT function as your own general contractor (Builder) / not available in all states.
In addition, the following homes/building styles are NOT allowed under these programs: Kit Homes, Barndominiums, Log Cabin or Bamboo Homes, Shipping Container Homes, Dome Homes, Bermed Earth Sheltered Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes, Tiny Homes, Carriage Houses, Accessory Dwelling Units and A-Framed Homes.
Your email to onetimeclose@fha.com authorizes FHA.com / FHALoan.com to share your personal information with a mortgage lender licensed in your area to contact you.
- Send your first and last name, e-mail address, and contact telephone number.
- Tell us the city and state of the proposed property.
- 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.
- Are you or your spouse (Co-borrower) eligible veterans? If either of you are eligible veterans, 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 $1,000,000 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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