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FHA SINGLE CLOSE CONSTRUCTION LOANS

Are you considering building your own home? Are you planning on taking out separate loans for the construction process and the home itself? The Federal Housing Administration (FHA) offers loans that can save you both time and money. These are called Single Close Construction Loans or One-Time Construction (OTC) Loans.

Learn more about these loans below!

What Is an FHA Single Close Construction Loan?

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An FHA One-Time Close (OTC) Loan is a popular loan for anyone who is looking to build a new single family home. An FHA OTC loan allows the borrower to combine financing for the purchase of the lot and the construction of the building into a single loan. The lending option has been specifically designed for borrowers who would like to build a home with a low down payment option.

This loan has a low money down requirement, competitive interest rates, and only a single closing. For this reason, an FHA Single Close Construction Loan is a popular lending option for single family home construction projects.

 

How Does an FHA Single Close Construction Loan Work?

This loan has been specifically created to make the financing process easier for buyers who are constructing a newhome. In the past, people used to have to take out separate loans for the construction costs (commonly called an interim construction loan) and the mortgage (which is often called the permanent loan). In addition, these loans used to have separate closing costs, which only drives up the price of the project.

Now, this FHA OTC Loan wraps up the financing into one convenient package. This loan has been insured by the Federal Housing Administration (FHA), which keeps the interest rates low. With borrowers already dealing with the details of constructing a new home, this is an easy way to take care of the financing process with a single loan. With one loan closing package, one promissory note, and one deed, this is the ideal loan for anyone looking for construction financing.

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What are the Loan Qualifications for an FHA Single Close Construction Loan?

In order to be eligible for an FHA OTC Loan, there are a few criteria that must be met:mortgage-caculator

  • There is a 96.5 percent minimum FHA LTV (loan to value ratio), or minimum 3.5% down payment
  • This is typically a 30-year fixed mortgage term
  • The minimum FICO credit score is 620
  • The borrower must have a contract with a licensed general contractor who will build the property
  • The bower must be purchasing the land at closing (or currently own the land)
  • The funds from the loan must be placed in an escrow account that will be disbursed to cover construction costs
  • The amortization of the permanent mortgage must begin 60 days after the Certificate of Occupancy has been issued when the construction project is completed

While the maximum amount of the loan might vary from location to location, these eligibility requirements are standard.

 

What Are the Benefits of an FHA One-Time Close Loan?

There are several benefits that everyone should note of an FHA OTC Loan. Some of the most important benefits include:

  • There is only one closing process which saves both time and money, as people only have to pay closing costs once
  • Anyone who is looking to borrow money to cover the cost of building a new house can do so with as little as 3.5 percent down
  • Because the loan is insured by the FHA, the interest rates are kept low
  • No payments are made during the construction process
  • There is no re-qualifying process after the construction phase is completed, which saves even more time and money
  • The interest rate on the FHA OTC Loan cannot change during the construction process because it is fixed
  • A reliable team of professionals will handle the transaction from start to finish, acting as the contact point for the borrower when it comes to builder approval, cost calculations, project review, and more

These are only a few of the many benefits that are going to accompany an FHA OTC Loan. It is easy to see why this loan has become so popular among individuals and families building their own homes!

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What Are the Alternatives to an FHA OTC Loan?

An FHA OTC Loan is only one option for people who are looking to build their own home. There are a few options thatmight work better depending on someone’s individual situation. Some of the most common alternatives include:

  • A VA One-Time Close (OTC) loan is available for veterans and anyone on active duty with the military whomight be interested in building a new home
  • Those who might have a low or moderate-income level might want to finance a home for as little as three percent down through the Fannie Mae Home Ready program
  • Anyone who would like to take cash out through a refinancing procedure should explore the FHA program

The good news is that there are plenty of loan options out there for almost everyone.

What Are the Steps Involved in Applying for an FHA Single Close Construction Loan?

If you are interested in applying for an FHA OTC Loan, there are a few steps that you should follow. The most important steps include:

  • You need to contact an FHA OTC Loan lender to get pre-approved for the loan
  • After this, a credit review will be conducted to determine your ability to repay the loan
  • You should make sure that any inaccuracies on the credit report are rectified before the credit review process takes place
  • You should be prepared to demonstrate proof that you either currently own or will be purchasing a lot on which your property is going to be built
  • You will need to have a contract with an FHA-approved builder who is going to construct your home
  • A financial review will also be conducted to ensure you can meet the minimum 3.5 percent down payment required by the FHA
When all of this is completed, a review of your project will be conducted to make sure that all of the details are in place.Finally, a team of professionals will walk you through the single, convenient closing process. Then, you can get started on your construction project!

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FHA OTC Loan with GO Mortgage Advantage

If you are looking for an FHA OTC Loan, then look no further than GO Mortgage Advantage. At GO Mortgage Advantage, we provide comprehensive services that walk you through the process from start to finish. Our caring professionals are here to advocate for your needs. Call us today to learn more about how we can help you!