USDA One Time Close Construction Loan
USDA One Time Close Construction Loan
The USDA One Time Close Construction Loan gives USDA-qualified borrowers the opportunity to finance the construction of their dream home, as well as the permanent mortgage all in a single mortgage loan with only one closing. This saves home buyers money on closing costs as traditional construction loans require 2 closings. Now you can purchase a lot and build your new home with a builder and borrower 100% of the purchase price as long as the home is in a USDA Eligible area. You can get started today by calling the John Thomas Team with Primary Residential Mortgage at 302-703-0727 or APPLY ONLINE.
A One-Time-Close USDA loan can help you build and finance the home you want, all in one streamlined loan. These loans offer interest rate protection and 100% financing.* Plus, payments aren’t due until construction is complete. The One time close construction loan closes both the construction loan and permanent financing at the same time. The Permanent financing is established prior to construction of the home. Final mortgage loan terms are modified to the permanent terms at the conclusion of construction.
Program Highlights for USDA OTC Construction Loan
The USDA OTC Construction Loans has the following benefits for eligible home buyers:
- Construction of an Owner-Occupied Single Family Residence Site Built, Modular or Manufactured new construction property
- Land can be purchased or paid off at closing and wrapped into construction loan, or gifted within accordance of USDA guidelines
- No payments due from the borrower during the construction phase
- Requires significantly less liquidity than traditional construction financing
- Convenience of not having to qualify and close 2 separate times
- Helps builders capitalize on leads by offering multiple types of financing
- Interest Rate Protection for the Homeowner
- Allows for simultaneous purchase of land or for the construction of a home on land already owned by the borrower.
What are the Guidelines for USDA One Time Close Construction Loan?
In order to qualify for a USDA OTC Construction loan, you must meet the following guidelines:
- Must Meet all the guidelines for a regular USDA Rural Housing Loan.
- Must purchase as Owner Occupied Primary Residence Only
- Must purchase lot and build home in a USDA Eligible Area (You can Look Up Property at https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=sfp)
- Must be a 1 Unit Property Only
- Minimum Credit Score to Apply is a 620
- May have co-borrower with no credit score as long as Borrower meets minimum credit score guideline.
- Gifts are allowable for 100% of down payment and/or Closing Costs.
- Self Help/Sweat Equity is not permitted. The Borrower CANNOT perform any of the work.
- Final Inspection Required when property is 100 percent complete by the original appraiser.
- You can apply for a Mortgage Credit Certificate if one is available.
- No mortgage payments due until construction is complete
- Manual Underwrite is permitted but not to exceed 29/41% on ratios but 32/44% permitted with an approved debt ratio waiver from Rural Development. Will require Rental history for Manual Underwrite.
What are the Eligible Property Types to Build for a USDA OTC Construction Loan?
The property types eligible for the USDA OTC Construction Loan are as follows:
- Single Family Residence Site Built
- Modular Home
- Newly Constructed Manufactured Home
There are some restrictions to Manufactured Homes as follows:
- New Manufactured home only, no relocated units
- HUD Certification Label Required
- Must be a multi-wide unit with a minimum of 400 square feet, No Singlewide homes allowed.
- May NOT be in a leasehold estate or condominium project.
- Structural Engineer Report is Required
- ALTA 7 Endorsement to title is required
- Upon completion of construction, home must be titled as real property.
What is the Interest Rate on a One Time Close Construction Loan?
When you apply for a OTC Construction Loan, you are really getting 2 loans all wrapped into one closing. For the USDA OTC Loan, you don’t make any payments on the construction loan, the interest on the construction loan is built into the purchase price. Borrower’s don’t make payments until the house is built and certificate of occupancy has been issued. It is at this time that the USDA Rural Housing Loan is put into place. This means there is no USDA Loan during the construction phase which means interest rates can fluctuate up or down during the construction of the home.
In order to protect home buyers from the fluctuations in interest rates over time we lock your permanent interest rate on the USDA Loan under a “Cap Interest Rate Lock with a Rate Float Down Feature”. At the completion of construction, as defined by the construction loan agreement, the interest rate on the permanent loan will automatically be lower of the then current offered rate for the program and pricing OR the capped interest rate initially locked. There are no requirements to request the interest rate float down nor will fees be charged for the interest rate float down.
Example of Interest Rate Scenario of USDA OTC Loan
Example of Rate Lower after House Built:
If today’s market rate for the USDA OTC Construction Loan is 4%, we would close and qualify the borrower at 5% rate. At the end of construction if the current market rate is 4.25%, we would float the rate down from 5% to 4.25%. The current market rate can be less than the initial estimated rate and float down to that. Therefore if current market rate at the end of construction is 3.5%, the borrower would be floated from 5% to 3.5%.
Example of Rate Higher after House Built:
Using the same example as above but if rate at end of construction is higher than the qualifying rate of 5% that was used when closed the loan, the rate cannot increase higher than the rate the borrower’s were qualified and closed at. Therefore, if the rate at time house is built is 6.5% then the final note rate would stay at 5% in this scenario and not increase to the current market rate of 6.5%. This provides the borrower interest rate protection during the home construction period.
How Do You Apply for a USDA OTC Construction Loan?
If you are interested in using a USDA Rural Housing OTC Construction Loan to build your dream home, then you can get started by contacting the John Thomas Team with Primary Residential Mortgage at 302-703-0727 or you can APPLY ONLINE.
*The full purchase price of the subject property can be financed. Borrower funds may be required for reserves, closing costs and/or minimum contribution.