Some house hunters get fed up with looking for just the right home, while others start out their home loan journey knowing in advance they want a house built for them. What options to these borrowers have?
There is an FHA home loan known as the FHA One-Time Close construction loan that lets borrowers apply for a single loan that covers both construction costs and the mortgage itself.
The FHA version of this type of construction loan requires the borrower and lender to work together to establish a plan for the project including estimated completion times, interest rates, budgets, and more.
Some borrowers aren’t interested in FHA home loans since they have other options; do qualifying military veterans have a VA loan version of the FHA One Time Close Mortgage? The short answer is yes.
The VA One-Time Close Construction Loan Program
VA construction loans have, on paper, long been available to eligible borrowers who meet VA loan time-in-service minimum requirements. But the instructions for participating lenders wasn’t as extensive and seemed to discourage lenders and borrowers from taking advantage of this option. However, in 2018 updates to the VA lenders guide offers more detailed guidance.
VA Construction Loan Steps
Once the lender agrees to the loan, the VA One-Time Close loan is closed, “prior to the start of construction with proceeds disbursed to cover the cost to build, cost of the land, or balance owed on the land, with the remaining balance in escrow” according to the VA official site.
Loan money disbursed during the construction phase of the project for labor and materials is viewed as a “Loan in Process” or as a “draw” account. The lender makes payments or “draws” the borrower’s permission (in writing!) before a new draw or payout can be made from the escrow account.
What Kind Of Home Can I Build With A VA Construction Loan?
VA guidelines may permit more types of dwellings than a single lender is willing to offer; you may find participating lenders unwilling to approve VA construction loans for three or four unit homes, manufactured homes, etc.
The lender may require that your property be “stick-built” only rather than a modular or manufactured home. (Stick-built homes are those constructed from the ground up in the traditional manner, rather than being assembled on-site like a modular home.)
Some lenders may permit a manufactured home to be built with a VA construction loan, but may restrict these transactions to certain types of mobile home (such as a double-wide). You will need to discuss lender standards as they related to your needs for the loan. Note that it is possible under the VA loan program to buy manufactured homes, but lender standards also apply in this area, too and you may not have every single home loan option technically available. VA construction loans are not the only types of loan product affected by lender standards.
Who Can I Hire To Build My Home With A VA One Time Close Construction Loan?
As mentioned above, lender standards apply to VA loans, but overall the Department of Veterans Affairs the VA construction loan borrower to use a licensed general contractor that is on a VA approved list. You may find that some lenders will not permit the borrower to do her own work on the home, or you may find that other restrictions or additional considerations apply.
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. Contact Us for More Information
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.
OneTimeClose.com provides information and connects consumers to qualified One-Time Close lenders in an effort 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). 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.
- 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 VA will allow – there are no maximum loan amounts as per VA guidelines. Most lenders will go up to $750,000 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.