Everything You Need to Know About the FHA One-Time Close Construction Loan

The FHA one-time close construction loan is a mortgage option that allows you to finance the construction of a new home as well as purchase the land in a single loan transaction. This convenient loan product provides home buyers with an easy way to build a custom home without having to obtain separate financing.

In this comprehensive guide, we’ll explain what an FHA one-time close loan is, who is eligible and the key benefits it offers. Whether you want to build on land you already own or purchase a lot and construct a new house, this loan can make the process smooth and affordable.

What is the FHA One-Time Close Construction Loan?

The FHA one-time close mortgage, also called a construction-to-permanent loan, combines the financing for land purchase, construction, and the permanent end loan into a single mortgage. This avoids the need for two separate closings which is usually required with construction loans and permanent mortgages

With an FHA one-time close loan:

• You have a single closing before construction starts
• The loan can cover purchase of the lot if needed
• It provides low down payment options from 3.5%
• You lock in a low fixed rate upfront that won’t change
• There is no need to requalify once construction is done
• You get the security of a government-backed loan

You work with a lender to determine loan eligibility and parameters. They hold the funds in escrow, dispersing them in stages as agreed construction benchmarks are met.

FHA One-Time Close Loan Basics

Here are some key facts about FHA one-time close construction loans:

• Insured by the Federal Housing Administration (FHA)
• Offered by FHA approved lenders
• For new construction homes only
• Max loan-to-value (LTV) up to 96.5% of total costs
• Minimum credit score requirements start at 580
• Down payments as low as 3.5% from your own funds
• No monthly payments due during construction phase
• Interest rates are fixed for the full loan term
• Streamlined approval process with single closing & one set of closing costs

These features make the FHA one-time close loan affordable and convenient for home buyers.

What are the Benefits?

There are many advantages to using an FHA one-time close construction loan compared to other financing options:

Single closing – Complete land purchase, construction loan, and permanent mortgage in one closing. Avoid an extra set of closing costs later.

Low down payment – Put as little as 3.5% down with flexible FHA requirements.

No re-qualification – Your loan is fully approved upfront so you don’t have to reapply for the permanent mortgage.

Fixed interest rate – Your rate is locked in for the full loan term from the initial closing.

Build custom home – Construct a house to your specifications on land you pick.

Streamlined process – FHA underwriting provides a simpler path to approval.

Government-backed – FHA insurance gives lenders confidence in approving your loan.

For buyers who don’t have a lot of cash or want to build their dream home, the FHA one-time close mortgage offers big advantages.

Who is Eligible for an FHA One-Time Close Loan?

To qualify for an FHA construction-to-permanent loan, you must meet some basic requirements:

• Minimum credit score of 580 or higher
• Debt-to-income ratio typically below 43%
• Have a contract with a licensed general contractor
• Sufficient income to meet mortgage payment obligations
• Intend to use home as primary residence

The home being constructed must also adhere to FHA property standards. Manufactured and modular homes may qualify but some restrictions apply.

FHA lenders will evaluate factors like your income, assets, employment, and credit profile to approve a loan amount. Home appraisal comes after closing when construction is complete.

When is an FHA One-Time Close Loan a Good Fit?

The FHA one-time close mortgage works well in these situations:

• You own land already to build on
• Want to buy land and build new construction
• Have less cash for a down payment
• Want custom home features and layout
• Don’t want to re-apply for a permanent mortgage
• Need flexible qualifying for credit or income
• Want to lock in a low fixed interest rate

It provides an affordable financing solution whether you have land picked out or need to purchase a lot.

Buying Land and Building with One-Time Close

If you need to buy land, the process involves first getting pre-approved by a lender for maximum loan eligibility. Then you can shop for land and make an offer contingent on securing financing.

Next, get bids from contractors and submit plans and costs to the lender for approval. They will order appraisals on the land and final home value. You’ll close on the full mortgage amount, then funds are dispersed in draws during construction milestones.

Once the home is finished, you can move in without any extra qualification or paperwork!

Ready to Apply for an FHA One-Time Close Loan?

If the FHA one-time close construction loan sounds right for your new home plans, here are some tips:

• Interview lenders to find the best rate and service
• Ask lenders what specific terms and eligibility rules apply
• Get pre-approved to see maximum loan amount you qualify for
• Make sure your contractor meets FHA license and certification requirements
• Understand the construction draw schedule and how funds are released
• Get help estimating total costs and building contingency needed
• Read all disclosures and loan estimates before committing

The FHA one-time close loan simplifies building a custom home. With an experienced lender and builder, you can make your dream home a reality with one mortgage and one closing!