Many borrowers may not be aware that they can build their dream home with one single, consolidated home loan. FHA One-Time Close construction loan lenders offer these loan products that carry many advantages in this regard. If you haven’t heard about the terms and benefits of an FHA One-Time Close construction loan, here’s everything you need to know about it.
Understanding the FHA One-Time Close Construction Loan
The FHA (Federal Housing Administration), which operates as part of the U.S. Department of Housing and Urban Development (HUD), offers mortgage insurance for loans originated by FHA-authorized lenders, which aids in keeping interest rates low. The FHA One-Time Close construction loan is a mortgage program that is available to help a person build a home for their primary residence, including site-built homes, modular homes, and manufactured homes.
Typically, traditional new home construction projects entail up to three distinct closings. You may need a loan to finance the land purchase, then a second loan to finance the construction itself, and a third closing when the home is complete and you are ready for a permanent FHA home loan. However, the FHA One-Time Close construction loan offers an alternative: one single consolidated construction-to-permanent loan with just one closing. This loan option is designed to streamline the funding process, making it simpler for buyers to manage their finances.
The FHA One-Time Close construction loan offers buyers the choice of a 15 or 30-year fixed rate. The loan closes before the construction process begins, and no payments are owed during this phase. Homebuyers can benefit from the FHA’s more lenient requirements, which include easy credit score qualifications and debt-to-income ratios acceptable up to 50%.
Advantages of the FHA One-Time Close Construction Loan
Firstly, they will only need to pay one set of closing costs. This can save homebuyers both time and money. Moreover, this approach eliminates any potential financing obstacles that may arise during the construction phase.
Secondly, the maximum loan-to-value ratio for the FHA One-Time Close construction loan is 96.5%, which means borrowers can close with a small down payment as low as 3.5%.
Thirdly, due to the permanent mortgage being finalized prior to the start of construction, the fixed interest rates for FHA One-Time Close construction loans will remain unchanged throughout the construction phase and beyond.
Fourthly, once construction is finished, borrowers are not required to meet eligibility criteria for a permanent mortgage re-qualification again, as the permanent loan is concluded before the commencement of construction.
Eligibility Requirements
To be eligible for an FHA One-Time Close construction loan, both first-time and repeat buyers must meet certain minimum qualifications. These criteria include:
- A minimum credit score of 620.
- The borrower must either buy the land at closing with the One Time Close construction loan or already own the property on which they plan to build.
- The borrower must have entered into a contract with a licensed contractor to oversee the construction process.
