Buyer Benefits for FHA One-Time Close Loans
FHA Construction Loans for Building Your Dream Home
Many potential borrowers aren’t aware that they have the option of building their dream home as a part of one, consolidated home loan. The FHA One-Time Close Loan offers them a number of advantages to help them do so.
Buyers can have a brand new home built specifically to their liking, rather than settling on a resale home. Having a new home built from scratch used to mean securing a short-term construction loan and then refinancing with a conventional loan once the house was built. With the FHA’s Construction-to-Perm Loan, the borrower closes one time, reducing loan costs and ensuring that no re-qualification is needed once construction is complete. This protects against unseen qualification changes on credit and income. The loan converts to a permanent mortgage as soon as construction is complete, and the new home is built.
With the FHA One-Time Close Loan, homebuyers can also take advantage of the agency’s lenient qualifications, such as easy credit qualifying for scores, more flexible guidelines for homebuyers’ work histories, small escrow reserve requirements, and debt-to-income ratios up to 50 percent. The low, 3.5 percent down payment requirement is also available, which can be paid entirely via gift funds.
The FHA also offers more flexible underwriting requirements with relaxed debt ratios. Approved builders are able to make a contribution of up to 6 percent toward the borrowers’ closing costs & prepaid items, without having a dollar-for-dollar reduction from the loan amount. Owning the land prior to construction could mean less of a down payment. Equity in the land owned can go towards your down payment requirement, lowering the overall cost of construction considerably.
Borrowers have a less stressful payment schedule as well, since there are no payment requirements during the construction period—an interim that should not exceed 150 days. Additionally, there is no minimum bank balance reserve requirement, whereas most conventional loans require a 2- to 3-month reserve in the bank to show that buyers can handle payments in the event income is interrupted.
Interest rates are locked in before construction begins. So even if there is a fluctuation in the market during the interim period, buyers will not have to worry about higher monthly payments once construction is completed.