Did You Know?

FHA loans are one of the best options for young, first-time home buyers who have not had as much time to save for a large down payment or establish a high credit score.

Click to Start Your Refinance or Purchase Loan

One-Time Close Construction Mortgages vs. Two-Close Loans

One-Time Close Construction Mortgages vs. Two-Close Loans

Did you know there is an FHA loan option that lets you build a house from the ground up? You can use this mortgage to build on land you own or on land you buy as part of the loan. If you have land equity built up in a property you already own you may even be able to use it as part of your down payment (circumstances permitting).

The FHA One-Time Close loan is the mortgage you want to build a home from the ground up instead of buying someone else’s dream home.

But you will want to address some issues comparing construction loan options. It’s true that some lenders still offer the riskier two-close construction loan with two applications, two closing dates, and two different interest rates for the two loans.

Why go with a single close construction loan? The most obvious answer is that getting through the approval process for a single mortgage is a lot better for most applicants.

But that aside, FHA One-Time Close construction loans feature a single interest rate, and that rate is typically offered for a 30-year, fixed-interest mortgage. It is not a variable or adjustable interest rate loan.

A single-close or One-Time Close loan process has the interest rate is set before construction and the permanent loan interest rate is also pre-determined for a surprise-free experience. Compare that to the experience a borrower may have during the more complicated two-close construction loan.

In those cases, a loan for the construction phase of the process may be offered strictly as an adjustable-rate loan. A fixed interest rate is offered for the permanent loan (the second one), which is the mortgage.

Application time is tricky for two-close loans. You get no guarantees that you definitely will qualify both times for the two loans. What could go wrong between the first and second applications?

Consider the borrower who has credit problems after the construction loan is approved. If they get the construction loan but not the permanent loan, there are obvious problems that happen as a result. The danger of being approved once, but not twice is enough to make some reconsider a two-close construction loan even if they are offered more competitive interest rates than a One-Time Close mortgage.

There are ways to manage the higher interest payments. one way is to divide your monthly payment in half and pay the same mortgage amount, but in two installments each month. 

Paying this way means you will make an extra mortgage payment each year without having spent any extra money, and that can go a long way toward helping you save money over the full term of the mortgage.


What You Need to Know About the Appraisal Fee
The Appraisal is an Important Requirement
Build Your Dream Home With a One-Time Close Loan
See Your Credit Scores From All 3 Bureaus
See Your Credit Scores From All 3 Bureaus

More FHA Loan Articles

Can Rental Income Be Used to Qualify for an FHA Mortgage?

FHA loan rules for single family purchase loans include guidelines for the lender to use if the applicant has rental income. Some want to know whether it is possible to qualify for an FHA mortgage using rental income. The real issue is whether the rental income meets FHA loan rules.

Questions to Ask About an FHA Home Loan Before You Apply

Planning your FHA loan means asking some important questions early in the process.  The most obvious question is associated with the type of home you want. How large a house do you need? FHA mortgages allow the purchase of homes with between one and four living units.

Ready To Apply for an FHA Loan?

Before you get ready to commit to a home loan application, it’s good to review your circumstances and ask a few basic questions about your loan, your plans, and the home itself. Believe it or not, knowing what type of home loan you need is an important step.

FHA One-Time Close Construction Loans: Issues to Consider

It’s a great option to consider if you want to build your dream home on your own land instead of buying someone else’s already-lived-in house. FHA One-Time Close mortgages are also referred to as single-close construction loans--you’ll see these terms used interchangeably.

FHA Appraisal Rules for Basements

The appraisal process is a very important part of buying a home. When you are budgeting and planning for your loan, you may want to set aside some extra funds in case there are corrections required as the result of an appraisal.

-- Find More Articles in the FHALoan Library --

FHALoan.com is not a government agency. We do not offer or have any affiliation with loan modification, foreclosure prevention, payday loan, or short term loan services. Neither FHALoan.com nor its advertisers charge a fee or require anything other than a submission of qualifying information for comparison shopping ads. We do not ask users to surrender or transfer title. We do not ask users to bypass their lender. We encourage users to contact their lawyers, credit counselors, lenders, and housing counselors.

SecureRights Advertiser Contact Information