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The FHA One-Time Close Loan lets borrowers finance lot purchase, new home construction, and permanent mortgage with one loan and one closing.

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One-Time Close Loan

FHA One-Time Close Construction Loan

The One-Time Close loan is a program made for borrowers constructing their home from the ground up. The FHA’s One-Time Close loans lets you combine financing for the lot purchase, construction, and permanent mortgage into a single loan with one closing (hence the name). This kind of loan wraps up the financing and closing procedures into one mortgage with all the benefits of an FHA loan product.

How it Works

The One-Time Close loan (also called a construction/permanent mortgage) process involves three main parties, the lender, borrower, and builder. It begins with the borrower being pre-approved by a lender and then securing a builder to construct the property. This builder will need to be approved by the lender as well.

Borrower’s may already own the plot of land on which the home will be built, but if not, the builder and borrower go through the process of site selection. Specific plans will be finalized detailing the build, including exterior drawings, dimensions, and materials to be used. These specifications are also used for the professional appraiser’s report which determines the house’s value (subject to completion), since there is no physical property to appraise—yet!

The builder and borrower create a Construction Contract; an agreement between both parties that outlines the project, the cost of building, and the construction timeframe. The lender is then given a cost breakdown needs by the builder with the total matching that on the Construction Contract. Upon reviewing the construction plans and costs, the lender structures the loan and creates a draw schedule. This acts as a timetable according to which funds are disbursed to the builder.

Finally, it’s time for the one-time closing. The borrower provides the down payment if the land is not owned outright, in which case there is no down payment requirement. Once closing is complete, construction on the new property begins. The borrower is not liable for any payments until the construction on their home is complete. The loan converts to a permanent mortgage and works just like any other home loan.

Benefits of the FHA One-Time Close Loan

The FHA’s One-Time Close Loan is becoming a popular loan option for a bunch of reasons.

  • A single closing saves you time and money. You end up paying a single set of closing costs and there is no re-qualification process to go through when the loan converts to a permanent mortgage.
  • If you don’t already own the land, you get to take advantage of the FHA’s low, 3.5% down payment requirement.
  • Once you close on your loan, the interest rate is locked in. That means you won’t be subject to paying a higher rate at the end of the construction period when your permanent loan goes into effect.
About the One-Time Close Constuction Loan
With the FHA One-Time Close Loan, there is no additional cost of a second closing on your permanent mortgage, and no re-qualification requirement.
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