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Types of One-time Close Construction Loans
There are different types of one-time close construction loans depending on what you qualify for and your specific needs. The common factor among these loans is the fact that there is only one closing required, which saves time and money, and makes the process easier. You can receive a VA Loan in Texas for the entire construction process with a single closing. You can receive a VA Construction Loan if you are a veteran or active duty military member. If not, there are other options available to you.
VA One Time Close construction loan
If you’re a veteran, active-duty service member, National Guard personnel, or a surviving spouse, you have the chance to own your dream home with the VA one-time close construction loan. It allows eligible members to receive a loan that finances the lot purchase, construction, and permanent mortgage of their home with a single closing.
It allows you to build modular and manufactured homes or site-built homes and removes the costs and requalifying process of a second closing. There is also no down payment, and the interest rates are very low. When you receive the VA one-time close construction loan, you don’t have to start payments until the construction is complete. The interest rate is also protected throughout the construction process.
The terms are 15-year and 30-year fixed options, and a permanent portion of the loan will be approved before the construction starts. You need to have a 620 credit score to qualify for this loan, and there are some requirements that borrowers must meet. For instance, you cannot perform any of the work and must work with a VA-registered general contractor.
Keep in mind that the VA would periodically inspect the property that is under construction. You also cannot move in until the VA approves your home, ensuring that the construction is done according to the VA Minimum Property Requirements. You can choose between building a home on land that is to be acquired or building a home on land that you already have. Also, it is for your primary residence only and not for investment properties.
If you don’t qualify for a VA or a conventional loan, you may want to check out Non-QM loans.
· FHA One time close construction loan
You can also consider getting an FHA one-time close construction loan, which allows borrowers to combine the loan for purchasing a lot, building their home, and a permanent mortgage into one loan. It is ideal for anyone building their first house. The down payment is low, the interest rates are competitive, and there is only one closing.
This type of one-time close loan is insured by the Federal Housing Administration, which reduces interest rates. Also, the maximum loan-to-value ratio is 96.5%. Once the loan is closed, the construction begins, and you don’t have to make payments until your home has been built. You can receive this loan for 15-year and 30-year fixed rates and even finance your closing costs into the loan.
With an LTV ratio of 96.5%, borrowers can apply for the FHA one-time close construction loan with a down payment of 3.5%. The interest rates are also fixed, so you don’t have to worry about sudden increases during or after construction. The main benefit is the fact that it’s an OTC loan, so there is no requalifying or second closing.
To receive this loan, you need a FICO of 620 and must be purchasing land at the closing of the loan or currently own land. You also have to work with a licensed general contractor, and when you receive the loan, the funds will be kept in an escrow account and the construction disbursements are paid out as needed. You can start with a pre-approval from reliable construction loan lenders and work towards getting your project approved.
Conventional One-time close construction loan
The conventional one-time close construction loan, also known as the Freddie Mac or FHLMC, is a loan product that allows borrowers to receive all the funds they need in a single mortgage loan. It is great for borrowers that want to make a custom home and have a good credit score. You can receive the loan for a newly constructed modular or manufactured home.
To be eligible for the loan, you need a minimum credit score of 700 if your loan-to-value ratio is less than or equal to 80%. The borrower has to work with a licensed general contractor and must buy the land when the loan is closed or own their own property. Like the FHA loan, the funds will be kept in an escrow account, and the permanent mortgage must be amortized 60 days after the final inspection of the home.
The FHLMC OTC construction loan comes with an LTV between a maximum of 90% to a maximum of 97%, depending on the type of home that you are building. The fixed rates are 15 years, 20 years, and 30 years. Once the loan is closed, the construction begins. You won’t need to apply for a permanent mortgage as it is all added in the single closing. But, the maximum construction loan amount depends on your location.
Aside from single closing spending time and money, the conventional OTC construction loan comes with permanent fixed rate mortgage that remains the same after closing. There is also no need for requalifying. As long as you meet the requirements, you can receive the conventional loan and start building.
USDA One time close construction loan
The USDA one-time close construction loan is also available to those who meet its requirements. It is provided by the United States Department of Agriculture and allows you to combine construction financing for the entire process, including lot purchase and permanent mortgage, into one loan. It is ideal for building site-built, modular, and manufactured homes with a single closing.
The USDA OTC construction loan offers a 30-year fully amortizing fixed term, and the closing costs can be financed into the loan. The maximum loan-to-value ratio is 100%, and there are no payments required until the construction is complete. It’s a great choice for homebuyers who want to avoid the stress of applying for a permanent mortgage after the construction loan.
This loan is ideal for borrowers with a minimum credit score of 640, and you must work with a licensed general contractor. After the loan is closed, funds will be disbursed to cover the purchase of the lot where you will build your home. Then, the balance will be kept in an escrow account and paid out when needed during construction. If you own a piece of land, then you don’t have to buy another one.
Since the LTV ratio is up to 100%, you can decide to apply for the USDA one-time construction loan with no down payment at all. The interest rates are fixed since the permanent mortgage has been closed, and there is no need for requalifying or a second closing. Consider this loan if you want to build a home but you don’t have enough cash for a down payment and have a low credit score.
One-time close Construction loans in Texas vs Construction to permanent Loans
What’s better, 2 closings or 1 closing when it comes to construction loans?
That’s a question that’s often searched so it’s important to know why someone might choose one over the other. A Military Veteran with a limited amount of savings is more than likely going to choose a VA One time close construction loan because there is a good chance he or she won’t have to make a down payment.
Also, there is a chance to get closing costs covered by the seller or builder. Someone with 20% down might opt for a Conventional One-time close construction loan because the interest rate and terms can be very good. 20% down with a conventional mortgage means no private mortgage insurance is required.
Say you have only 10% down and aren’t a Veteran. In this example maybe you opt for 2 closings with the first one being a temporary construction loan. In this case, you likely will get a variable rate and short-term loan that you’ll need to refinance into permanent financing.
The issue with this is that you aren’t protected from interest rate volatility and you will have to requalify for your permanent loan. This creates a lot of extra risk because what if your finances change or you lose your job.
Utilize a Construction loan calculator to start the Construction loan process
There are many factors to consider when starting the Construction loan process. Whether you’re a Veteran looking for a Construction loan or a civilian looking to build a home; you’ll have the same things to consider. Here are the top 10 things to consider when you want to build a home in Texas. A construction loan calculator will help you determine your budget and more!
- Have you found a builder?
- Do you have approved plans?
- Do you own land or have the land you want under contract?
- If you don’t have land and don’t have land under contract; how long will it take you to find land?
- Do you want to try to close with a one time close to cover the land and construction cost or get the land purchase out of the way first and then proceed to construction at a later date?
- Where will you live while your home is being built?
- Is your builder approved by your Lender?
- How much can you afford and are you sure it’s better to build than buy?
- What kind of home do you want to build?
- How long will it take to build your home?
Construction Loan Lenders in Texas that do One Time Close Construction loans
Security America Mortgage is headquartered in Texas and specializes in Construction loans, VA loans, VA renovation loans, VA construction loans, FHA construction loans, FHA loans to purchase, USDA loans, ITIN loans, conventional loans, and more. They have excellent Google and Facebook reviews and proudly support Texas Veterans and the United States of America’s Armed Forces.
