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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.

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FHA One-Time Close Construction Loans: Issues to Consider

FHA One-Time Close Construction Loans: Issues to Consider

What do you need to know about FHA One-Time Close construction loans? This type of mortgage combines a construction loan and the mortgage itself into a single application, loan approval, and closing day.

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.

Down Payment Factors

Do you already own the land you plan to build your home on? If so you may be able to use some of your land equity for the down payment where applicable. You’ll want to discuss this option with your lender early in the process.

FHA One-Time Close construction loans have an advantage over conventional mortgages due to the low down payment requirement, but lender terms also apply and you’ll want to know what kind of down payment to get ready for as far in advance as you can.
That’s one reason why it’s smart to compare lenders based on the down payment issue as well as other factors. Can a conventional lender beat an FHA lender’s down payment rules?

Not Property Types Qualify

FHA lenders don’t offer all home loan products available in the FHA Single-Family Home Loan program, and not all lenders approve home loans for all housing types.

For example, properties having few comparables in the area, may be harder to get construction loan approval for. This is typically true of tiny houses, barndominiums, or other unique properties.

Borrowers get the best results in their single-close construction loan journey when  looking for a one-time close lender so you can build a single-family, one-unit home described in the mortgage industry as a “stick-built” home.

Third Party Labor Required

Typically you will find participating FHA lenders unwilling to approve a single-close construction loan for people who want to act as their own contractor. Borrowers should not expect to build their own home with their own tools, and you likely won’t be allowed to use family and friends to help out, either.

 Construction loans require licensed builders and specific completion timelines. Lenders know what can potentially happen with a self-build and they seek to avoid such complications. Expect to use licensed professionals only. You’ll need to compare contractors in the same way you shop around for a lender; review online reputation, customer feedback on the official site, and any peer-review sites that may mention your contractors such as Angi.com.


Get Your Questions Ready for Your Loan Officer
The Last Part of the Transaction Is the Mortgage Closing
Know What You Can Borrow With Prequalification
See Your Credit Scores From All 3 Bureaus
See Your Credit Scores From All 3 Bureaus

More FHA Loan Articles

Home Loan Closing Costs

When you buy a home with an FHA mortgage, cash for closing costs and your down payment is required. It would be easy to assume you simply give the lender cash in the specified amount and that’s the end of the story.

How FHA Construction Loan Draw Disbursements Work

When you are approved for an FHA One-Time Close Construction loan, you get a single loan that pays for both the costs to build the house, and serves as the mortgage. One application, one approval process, and one closing date.

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. But you will want to address some issues comparing construction loan options.

FHA Loans, Appraisals, and Excess Land

Sometimes when buying a home there may be a question of surplus or excess land. You likely won’t face this issue when buying a condo unit, but for other types of purchases, this may be an important factor in the appraisal process.

FHA Loan Income Rules to Consider Before Applying

Your lender is required to make sure you can realistically afford your mortgage, and that means verifying that your income is stable, reliable, and will continue after your mortgage has closed. What some don’t realize about this process is that there are standards for verifying income.

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