FHA, VA, and USDA Construction Loan Options

March 8, 2021

FHA One-Time Close construction loan options are available for borrowers who wish to apply for an FHA mortgage but don’t want to buy an existing property. If you want a home built for you from the ground up, construction loans are the way to go. But not all borrowers understand they have options for this type of loan-options that include VA and even USDA construction loans for qualified applicants.

USDA Construction Loans for Qualifying Rural / Suburban Housing Markets

The USDA construction loan program is something we’ll examine in depth in a separate article-the requirements for USDA loans may include a demonstration of need (there is a “moderate income limit” according to the USDA official site) and there may be restrictions on the location of the property to be constructed with a USDA loan.

USDA construction mortgages aren’t for all housing markets, but for those who want to build a home in eligible suburban or rural areas this is an option worth exploring.

The VA One-Time Close Construction Loan

Similar to the FHA’s One Time Close Construction Loan program, the Department of Veterans Affairs offers a similar benefit to qualifying veterans and currently serving military members, certain surviving spouses, etc.

The VA construction loan option has been available for some time, but the Department of Veterans Affairs recently updated its’ VA Lenders’ Handbook to include expanded guidance. According to the VA, in the past “the brevity of VA guidance has kept many lenders from offering the product.” With the updated guidelines, confusion or ambiguity related to VA construction loans has been eliminated.

How Does the VA One-Time Close Construction Mortgage Work?

The applicant and lender work together on the terms of the loan (interest rates, duration of the mortgage, escrow, etc.) and the loan is closed, “prior to the start of construction with proceeds disbursed to cover the cost to build, cost of the land, or balance owed on the land, with the remaining balance in escrow.”

The remaining funds of the VA One-Time Close loan to be disbursed during construction for labor and materials is viewed as a “Loan in Process” or draw account. VA loan rules require your participating lender to get permission from the borrower in writing before a new draw or payout can be made during the construction phase.

Who Can I Hire to Build My Home With a VA One-Time Close Construction Loan?

Additional lender standards may apply to VA loan rules, but in general the VA requires the borrower to use a licensed general contractor that is on a VA approved list. You may find that some lenders will not permit the borrower to do her own work on the home, or you may find that other restrictions or additional considerations apply.

No two lenders will offer identical terms, rates, or conditions. You will need to discuss your specific needs and goals for the construction loan with your loan officer to see how lender requirements may apply. Some lenders may require higher FICO scores for construction loans, some lenders may restrict construction loans to a certain type (such as a single-unit, stick-built home as opposed to a multi-unit property or manufactured housing).

We have done extensive research on FHA One-Time Close mortgages and spoke directly to the licensed lenders for most states. These are qualified mortgage loan officers who work for lenders that know the product well. 

 FHA, VA, and USDA: One-Time Close Loans

Want More Information About One-Time Close Loans?

We have done extensive research on the FHA (Federal Housing Administration), the VA (Department of Veterans Affairs) and the USDA (United States Department of Agriculture) One-Time Close Construction loan programs. We have spoken directly to licensed lenders that originate these residential loan types in most states and each company has supplied us the guidelines for their products. We can connect you with mortgage loan officers who work for lenders that know the product well and have consistently provided quality service. If you are interested in being contacted by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.
 
FHA.com provides information and connects consumers to qualified One-Time Close lenders in an effort to raise awareness about this loan product and to help consumers receive higher quality service. We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.
 
Please note that investor guidelines for the FHA, VA, and USDA One-Time Close Construction Program only allows for single family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes). In addition, the following homes/building styles are not allowed under these programs:  Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.
 
Your email to [email protected] authorizes FHA.com to share your personal information with a mortgage lender licensed in your area to contact you.

1. Send your first and last name, e-mail address, and contact telephone number.
2. Tell us the city and state of the proposed property.
3. Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good - (640-679), Fair – (620-639) or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.
4. Are you or your spouse (Co-borrower) eligible veterans? If either of you are eligible veterans, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio per VA will allow – there are no maximum loan amounts as per VA guidelines.  Most lenders will go up to $750,000 and review higher loan amounts on a case by case basis.   If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.