Everything You Need To Know About the iSDA One Time Close Loan

The iSDA one time close loan is an innovative loan program offered by the United States Department of Agriculture (USDA) that allows borrowers to buy land and build a home with one loan and one monthly payment. This loan combines financing for the land purchase, construction costs, and a long-term mortgage into a single loan product, streamlining the home buying and building process.

In this comprehensive guide, we will explain what an iSDA one time close loan is, its pros and cons, eligibility and property requirements, interest rates, how to apply, and alternatives if you don’t qualify. Whether you are looking to build your dream home on an empty lot or transform a fixer-upper, understanding this unique loan program can help you achieve your homeownership goals.

What is the iSDA One Time Close Loan?

The iSDA one time close loan also known as a single close construction loan or construction-to-permanent loan, is part of the USDA’s Single Family Housing Guaranteed Loan Program. It allows borrowers to finance the purchase of land and construction of a new home in eligible rural areas with one loan that converts to a permanent mortgage once construction is complete.

Here are some key features of the iSDA one time close loan

• One loan, one closing: Rather than obtaining separate loans for the land, construction, and permanent mortgage, everything is rolled into one loan. This means lower closing costs.

• Single monthly payment: You only have one monthly payment during construction and once the home is completed.

• Up to 100% financing: Like standard USDA loans, you can get a loan for up to the full appraised value of the home, meaning no down payment is required.

• Fixed interest rate: The interest rate is fixed for the entire 30-year term after construction ends.

• Rural locations: The home must be built in an eligible rural area as designated by the USDA.

The bottom line is that the iSDA one time close loan simplifies the process of buying land and building a custom home. Qualified borrowers can become homeowners with very little money out of pocket.

Pros and Cons of the iSDA One Time Close Loan

As with any loan program, the iSDA one time close loan has both advantages and potential drawbacks to weigh.

Pros

• Streamlined process for buying land and building a home
• Lower closing costs with one loan
• No down payment required
• Fixed low interest rate
• Only one qualification process
• Rural locations allow more land and customization

Cons

• Must use USDA approved lender and builder
• Limited availability and difficult to find
• Lengthy approval and construction process
• Strict borrower and property eligibility requirements
• Rural locations can mean isolation

While certainly not a fit for everyone, the iSDA one time close loan can be an excellent option for eligible borrowers looking to build a rural dream home with little money out of pocket. Shop around with lenders to find the best rate and term.

iSDA One Time Close Loan Requirements

To qualify for the iSDA one time close loan program, both the property and the borrower must meet specific eligibility criteria set by the USDA. These requirements help ensure loans go to qualified applicants building homes in rural areas.

Borrower Requirements

As the borrower, you must meet the following requirements to be eligible:

• Credit score of 640 or higher
• Debt-to-income ratio below 41%
• No bankruptcies in past 2 years
• Meet USDA income limits for your area and household size
• Stable income and employment history
• Clean credit history with no late payments

In addition to solid credit and income, you must plan to use the home as your primary residence and work with USDA approved lenders and builders. Meeting all eligibility criteria is key to qualify.

Property and Location Requirements

The iSDA one time close loan also has strict property and location requirements, including:

• The home must be located in a USDA designated rural area
• Eligible property types include single family homes, condos, and manufactured homes
• Vacation homes or rental properties are not eligible
• Must use USDA approved contractor and builder
• Home must meet all local building codes and requirements

Working with USDA approved real estate agents and lenders familiar with the program can help navigate these rural location and construction requirements.

Interest Rates on iSDA One Time Close Loans

Interest rates on iSDA one time close loans will typically be higher than rates on standard mortgages and refinances. Rates can vary significantly by lender as well.

Typical iSDA loan rate range:

• 4.25% – 5.25% for 30-year fixed

Compared to typical conventional 30-year fixed rates:

• 3.75% – 4.75%

The higher rates on iSDA loans reflect their niche availability and specialized purpose. However, once construction is complete and you make 6-12 months of on-time payments, you may be able to refinance to a lower rate.

Shopping around with multiple lenders is important to find the best iSDA one time close loan rate for your situation. Compare costs and fees in addition to headline rates.

How to Apply for the iSDA One Time Close Loan

The process of applying for an iSDA one time close loan generally includes these primary steps:

1. Find Land and Builder

• Search for vacant land and builder in USDA eligible rural area
• Get cost estimates for land purchase and construction

2. Choose USDA Approved Lender

• Compare iSDA lenders and loan programs
• Gather required documents (income/employment proof, credit history etc.)
• Complete loan application and get pre-approval

3. Submit Official Loan Application

• Finalize land purchase and builder contract
• Verify property and builder USDA eligibility
• Send full loan application package to lender
• Go through underwriting and approval process

4. Close on Loan and Begin Construction

• Close on iSDA one time close loan
• Initial payment goes toward land purchase
• Construction begins per agreed timeline
• Make payments throughout build process

5. Construction Completes and Loan Converts

• Upon completion, loan converts to permanent mortgage
• Excess funds go toward principal
• Occupancy can begin!

While the process takes patience and coordination, the reward is a simplified path to building a custom rural home.

Alternatives to the iSDA One Time Close Loan

If you don’t qualify for the iSDA one time close loan or want to consider other construction loans, here are a few alternative programs to research:

• FHA One-Time Close Construction Loan – Backed by Federal Housing Administration, 3.5% down payment option

• VA One-Time Close Construction Loan – For veterans and service members, no down payment

• Conventional Construction Loans – Typically require 10-20% down payment

• USDA Land Loans – Finance land purchase separately, then apply for construction loan

• FHA 203k Loan – Finance purchase plus renovations on fixer-upper home

• Manual Underwriting USDA Loans – Alternative path to approval for special cases

The best loan program depends on your financial situation, credit, down payment funds, property location, and more. An experienced loan officer can help you explore all your options.

FAQs About the iSDA One Time Close Loan

Can you get 100% financing with an iSDA loan?

Yes, the iSDA one time close loan offers up to 100% financing, meaning no down payment is required. You can finance the full cost of land purchase and construction.

What is the minimum credit score for an iSDA loan?

The minimum credit score is typically 640 for an iSDA one time close loan. Requirements may vary slightly by lender. The higher your score, the better your chances of approval.

Can the iSDA loan be used to renovate an existing home?

No, the iSDA one time close loan can only be used to finance the purchase of vacant land and construction of a new home in a rural area. It cannot be used to renovate an existing home.

How long does the iSDA approval process take?

You should expect the iSDA loan approval process to take anywhere from 30-60 days from completed application to closing. Construction will take additional time per your contract.

Can I build on land I already own?

Yes, you can use an iSDA loan to build on a rural property you already own, but you cannot receive any cash back. The land value will be rolled into the full loan amount.

What are closing costs on an iSDA loan?

Closing costs are typically between 2-5% of the total iSDA loan amount. This covers origination, appraisal, credit check and other standard loan fees. Closing costs are lower than with multiple construction loans.

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