FHA One-Time Close Construction Loan
Is a FHA One Time Close Construction Loan right for you?
Two isn’t always better than one. Let me explain.
If you’re building your house from the ground up, you’ll most likely take a construction loan followed by a permanent loan. This scenario will require you to have 2 loans, which means you’ll have 2 start dates and 2 closing dates—which means you’ll pay for 2 separate closing costs!
An FHA one-time close construction loan, however, will allow you to have your home built and financed just under one loan. It’s simpler and more cost-efficient and you end up with a FHA Loan with a 30 year fixed rate when all is said and done. Got Questions or want to get started today, call John Thomas Team with Primary Residential Mortgage at 302-703-0727 or APPLY ONLINE.
First, let’s dissect the term “FHA One-Time Close Construction Loan.”
FHA stands for Federal Housing Administration. An FHA loan is a mortgage issued by an FHA-approved lender and insured by the FHA. FHA loans are designed for low-to-moderate income borrowers and require lower minimum down payments and credit scores than many conventional loans.
A construction loan (also known as a “self-build loan”) is a short-term loan used to finance the building of a home or another real estate project. Construction loans are only for buying land and building structures or for improvements. Once construction is finished, you need to pay off the construction loan, which most people will replace with a loan that looks more like a standard mortgage which you will pay over a number of years.
A one-time close loan is a type of mortgage that is available for those who are building a house. This loan allows you to get both loans (the construction loan and the permanent loan) at once. When construction is completed, your loan becomes a traditional mortgage.
Advantages of an FHA One-Time Close Construction Loan
If you like “one-stop-shopping,” the FHA one-time close construction loan will be attractive for you.
- It means only one application. You only have to go through the process once.
- It means only one closing. Multiple closings mean higher costs. The cost difference might not be dramatic, but still a penny saved is a penny earned.
- Some lenders will allow you to add interest costs (during the construction phase) to your permanent loan, making it easier for you to make payments while waiting for your home to be finished.
- It gives you added security. With a one-time close loan, in the event you lose your job during the construction phase, you still get permanent financing. If this happens with a regular construction loan, you might have a hard time convincing a lender to approve your next loan while you’re between jobs.
- You can lock in a rate if you think rates will increase during construction phase. You’ll also be able to plan your budget better since you can calculate and budget for monthly payments in advance.
The Disadvantages of a FHA One Time Close Construction Loan
- One-time close FHA loans probably come with slightly higher interest rates. However, the benefit is you lower your risk, and you have the convenience of one closing. If you want to pay for convenience, this loan might be for you.
- You’re not as flexible. If you keep your permanent loan separate, it means you have the freedom to apply for a loan from anywhere, for any kind of loan, instead of being tied down to one mortgage lender. But you have twice the closing costs and risk not qualifying for the second after construction is done.
What are the Requirements to Qualify for a FHA One Time Close Construction Loan?
In order to qualify for a FHA One Time Close Construction Loan, you must meet the following guidelines:
- A minimum middle FICO score of 620 for all borrowers
- The New Home MUST Be your Primary Residence
- Minimum Investment is 3.5% of the purchase price
- Must be a Stick Built or Modular Home in order to qualify
- Closing Occurs before construction begins
- Closing Costs Can be financed into the FHA Loan
- No Payments on Mortgage Loan till after receive Certificate of Occupancy.
What are the Allowable Property Types for FHA Construction Loan?
The following property types are allowable to be built using a FHA one time close construction loan:
- Singe Family Residence
- Manufactured or Modular Home
- Barndominimum – must have comparable sales in the area
- Kit Homes – But Client May Need to finance the materials because we cannot finance materials until onsite
- Tiny Homes – No minimum square footage but must have comparable sales in the area
What are Non-Allowable Properties for OTC Construction Loans?
The following home property types are excluded from the FHA One Time Close Construction Loan Program, meaning that you won’t be able to use the One-Time Close loan for financing:
Log Cabin Homes
Pre-cut kits for log buildings that are assembled on site.
Shipping Container Homes
A dwelling made from a steel container otherwise used for shipping
Stilt Homes
Houses raised on piles over land or a body of water.
Solar Only or Wind Only Powered Homes
Homes that are powered on-site solely by solar panels or solely by wind turbines.
Dome Homes
Homes made in the shape of a sphere utilizing shell framework.
Bermed Earth Sheltered Homes
Homes with earth (soil) against the walls, roof or buried underground.
Accessory Dwelling Units
Additional living quarters that are independent of the primary dwelling. This Must be financed with a Renovation Loan Product not with a Construction Loan.
A-Framed Houses
Building with a tall triangular roof that resembles the letter A.
The primary reason for these exclusions is that all non-regular homes are considered unique properties and hard to get comps for under VA and FHA. These homes require specialized construction techniques, making it even more important that a single builder starts and finishes a project. If the builder were to quit before a job is finished, the lender would need to step in and find a replacement. This can be more difficult than usual due to the specific nature of the work.
Can I Use Down Payment Assistance with a Construction Loan?
For 99% of Mortgage Lenders the answer is “No”, you cannot use a Down Payment Assistance Program with any Construction Loans. BUT, Primary Residential Mortgage has a unique 3.5% down payment assistance program to cover your FHA down payment with our PRMI Empower Program. The 3.5% down payment program will cover your required down payment and we can also roll closing costs into the purchase price so you essentially come out of pocket with almost no money to build your own home!
How Do I Apply for a FHA One Time Close Construction Loan?
If you’re not sure if an FHA one-time close construction loan is the best step to take, please contact the John Thomas Team at Primary Residential Mortgage at 302-703-0727 or APPLY ONLINE and we’ll figure out your best mortgage loan option together.
John R. Thomas – NMLS 38783
Certified Mortgage Planner – Primary Residential Mortgage, Inc.
302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office
248 E Chestnut Hill Rd, Newark, DE 19713
FHA One-Time Close Construction Loan: Frequently Asked Questions
If you’re considering building your dream home from the ground up, the FHA One-Time Close Construction Loan can simplify the process. Below are some of the most common questions borrowers ask about how this program works, who qualifies, and what to expect along the way.
What exactly is an FHA One-Time Close Construction Loan?
It’s a single mortgage that finances both the construction of your new home and the permanent loan once construction is complete. You only close once—before construction begins—and the loan automatically converts to a traditional FHA mortgage after your home is built. Learn more.
What are the main advantages of this type of loan?
- Only one application and one closing.
- Secure your permanent mortgage rate before construction starts with option to Float down if rates improve.
- Interest during construction can be rolled into the loan so no payments during construction.
- Fewer surprises—your long-term financing is locked in from the start.
Are there any drawbacks I should know about?
- You’re tied to one lender for both the construction and permanent phases.
- Interest rates may be slightly higher than a standard FHA purchase loan. But you do get to float down at closing if rates have gotten better since construction began.
- You must qualify upfront for both parts of the loan.
What are the basic qualification requirements?
- Minimum 620 middle credit score.
- Must be for a primary residence only.
- Minimum 3.5% down payment.
- Home must be stick-built or modular (not specialty construction).
- Closing occurs before construction begins.
- No mortgage payments until your home receives a Certificate of Occupancy.
Which property types are not eligible?
The following are typically not allowed under the FHA One-Time Close program:
- Log cabins or shipping container homes
- Stilt, dome, or earth-sheltered homes
- Solar-only or wind-only powered homes
- Accessory Dwelling Units (ADUs) separate from the main residence
- A-frame homes or other non-traditional styles
When do mortgage payments begin?
Mortgage payments do NOT begin until your home is complete and you’ve received a Certificate of Occupancy.
Can closing costs be financed into the loan?
In many cases, yes. Depending on lender and program limits, some or all of your closing costs may be rolled into the total FHA loan amount. Primary Residential Mortgage does allow for the closing costs to be rolled into the loan but including in the final price of the build.
How do I start the application process?
It’s best to speak with a licensed mortgage professional who offers FHA construction loans. They’ll help you verify eligibility, review your credit, and gather the required documentation such as building plans, cost estimates, and builder credentials. Get started here.
Is this program available nationwide?
While the FHA program itself is national, Primary Residential Mortgage offers the FHA One Time Close Construction Loan in every state BUT New York.
What happens if I sell or refinance before construction is complete?
Because the loan covers both construction and permanent financing, selling or refinancing mid-construction is not allowed. Construction MUST be complete and Certificate of Occupancy issued prior to refinancing or selling the property.
Ready to explore whether the FHA One-Time Close Construction Loan is right for you? Contact our team for a personalized review of your goals and eligibility.
Ready to Build Your Dream Home with One Easy Loan?
Our FHA One-Time Close Construction Loan lets you finance the build and the mortgage in one smooth process – Start your project with confidence today.
