One-Time Close Borrower Eligibility
The One-Time Close loan is a great option for all buyers looking for affordable options from the lack of existing homes on the market. But just like any other mortgage, there are some requirements that you, the borrower, are going to have to meet in order to be eligible for the One-Time Close Loan. All the regular guidelines for FHA, VA, and USDA loans still apply, but there are some additional requirements as well.
The Importance of Credit Scores
As with all home mortgages, Home Funding Corporation sets credit score requirements for the Single Close Loan. For FHA and VA, Home Funding Corporation typically requires a minimum FICO score of 620 in the case of two borrowers, and 660 in the case of a single borrower. For USDA loans, it is necessary to have two applicants with a minimum score of 620.
Down Payment Requirements
The great thing about FHA, VA, and USDA Single Close Loans is that borrowers can bypass the cash down payment requirement fully if they already own the land and have enough land equity to meet the minimum investment requirement for the loan. Value of the land as determined by the appraiser (or the original cost of the land, depending on length of time of ownership and type of loan) less any lien payoff owed on the land is used to determine any land equity the borrower may have. The land can even be gifted, in which case all the standard FHA, VA, or USDA guidelines would apply. However, if the purchase of the land is being financed as part of the loan, the FHA requires a 3.5 percent cash down payment. Maximum Loan-to-Value on FHA mortgages is 96.5%, and 100% on VA and USDA loans. LTV is based on the lower of acquisition cost (land cost/value + construction contract) or appraised value.
About Property Guidelines
The FHA, VA, and USDA all mandate that any home built and purchased with a One-Time Close loan must serve as the borrower’s primary residence. If you’re thinking about building a vacation home or investment property, this is NOT the loan for you! The Single Close loan can be used to construct new manufactured homes (excluding single wide homes), modular homes, and site-built homes, all of which must typically be one-units.
Understanding the Loan Term
On FHA, Home Funding Corporation typically offer 15- and 30-year fixed rate loans for the Single Close option and the construction term is outside of the permanent mortgage term. VA and USDA One-Time Close loans Home Funding Corporation offer a 30-year, fully amortizing mortgage, but the construction term is inside of the mortgage term, so borrowers must qualify for a 29-year loan. Note: Annual fees will typically be escrowed to cover the construction period for up to 12 months in the case of a USDA loan.
To get ready for a construction loan, it’s good to think ahead. Work on reducing debt-to-income ratios, avoid applying for new lines of credit, and pay close attention to your credit report to avoid delays because of errors, outdated information, or other problems. Prepare for the approval process as you would for any financial loan, and make sure to keep the lines of communication open with Home Funding Corporation and the builder!