One-Time Close Construction Loan

Building a new home is exciting and sometimes complicated. A One-Time Close Construction Loan can make the process simpler and more straightforward. Here’s how:

• Simplified Application Process: You only need to complete one application, streamlining your paperwork and saving you time. 

• Interest-Only Payments: During construction, you only pay the interest on your loan, keeping your monthly expenses lower. Once your home is built, you’ll start paying towards the principal too.

• Fixed Interest Rate: Lock in your interest rate at the beginning, protecting yourself from potential rate increases in the future. This gives you the stability of knowing exactly what your payments will be.

• Extended Rate Lock: You can lock your interest rate for up to 12 months and have the option to adjust it once within 30 days of your home’s completion to reflect current market rates.

• Lower Closing Costs: With only one closing process instead of two, you could save on administrative and service fees.

• Flexible Down Payment Options: Pairing your loan with VA or FHA loan programs could provide you with more flexible down payment options.

• Build Your New Home: Take control of building your home from the ground up, ensuring it meets all your needs and preferences without the need for future renovations.

Qualifying for a One-Time Close Construction Loan varies based on the loan type:

• VA OTC Loan: For veterans or members of the military, you'll need a minimum credit score of 620 and meet specific service requirements.

• FHA OTC Loan: Requires a minimum credit score of 580.

Additional Requirements:

• Down Payment: Depending on the loan type, down payments can range from 0% to 20%. Gifts or land equity may also be acceptable as down payment assistance.

• Mortgage Insurance: This varies by loan type. Conventional loans typically require Private Mortgage Insurance, while FHA loans need a mortgage insurance premium.

• Income Verification: You must show steady income for at least two years, which can be verified through bank statements, W-2s, and tax returns.

• Property Use: Conventional loans may allow the property to be a primary or secondary residence. VA and FHA loans require the property to be your primary residence. Investment properties are not eligible.

• Building Requirements: You’ll need to provide home plans and specifications for appraisal purposes. A home inspection is also required upon completion.

Explore the different One-Time Close Construction Loans available to find the one that fits your needs:

• Conventional Single Close Construction Loans: These are not government-backed and require a credit score of at least 680. You must own or be purchasing the lot you intend to build on, and the Loan-to-Value (LTV) ratio must be 95% or less.

• VA Single Close Construction Loans: Available exclusively to veterans, active military members, and eligible spouses. These loans are supported by the Department of Veterans Affairs, often feature lower interest rates, and do not require a down payment.

• FHA Single Close Construction Loans: Ideal for borrowers with lower credit scores, these are backed by the Federal Housing Association. A minimum credit score of 580 is needed, though scores as low as 500 may be considered with a higher down payment and a capped LTV of 90%. These loans also accommodate a higher Debt-to-Income (DTI) ratio than many others.

Getting a One-Time Close Construction Loan involves a few key steps:

• Choose a Builder: Select a builder and contractors for your project. Remember, your lender must approve your choice before proceeding.

• Draft a Construction Contract: Work with your builder to outline the project details like timeframe and costs in a construction contract.

• Prepare Home Plans: You'll need to provide detailed plans and specifications of the home for the lender's appraisal. For FHA and VA loans, an initial survey and possibly a lot contract are also needed.

• Apply for the Loan: The application process for a One-Time Close Construction Loan is thorough, requiring proof of income, credit information, DTI ratio, and assets.

• Close the Loan: Once approved, you'll close on the loan and can begin construction.

• Start Building: With the loan closed, construction on your new home can commence.

These steps ensure that both you and the lender have all necessary details aligned for a successful home building project.

What is an FHA One-Time Close Loan? This loan is designed for borrowers with less-than-perfect credit, combining a government-backed FHA loan with construction financing into a single loan for easier qualification.

What is a VA One-Time Close Loan? Aimed at veterans, servicemembers, and eligible military associates, this loan merges VA benefits like no down payment with construction loan financing under one program.

What is a Single Close Construction Loan? This loan simplifies building a home by combining the construction loan and permanent mortgage into one single loan, reducing paperwork and only requiring one set of closing costs.

What is the minimum FICO score for a One-Time Construction Loan? Credit score requirements vary: FHA and VA loans typically need a minimum of 640, though 580-640 might be acceptable with AUS approval. Conventional loans generally require a score of 680 or higher.

What's the difference between a mortgage and a construction loan? A construction loan is a short-term loan to cover building costs like materials and labor. A mortgage is a long-term loan used to finance the purchase of a completed home.