FHA One-Time Close

What is the FHA One-Time Close Loan?


The FHA One-Time Close (OTC) loan is a product that allows borrowers to combine financing for a lot purchase, construction and permanent mortgage into one first mortgage loan. Ideally suited for borrowers who are purchasing new construction, the FHA OTC loan offers the benefits of low money down financing, competitive interest rates and one closing for all financing.

And we have now simplified the program even further, with a single administration fee which includes the construction interest, as well as such things as:

  • Construction draws
  • Title updates
  • Any necessary loan modifications
  • Construction underwriting
  • Construction closing coordination
    • FHA One-Time Close Loan – The Basics

      • Designed to simplify the financing process for new home buyers, eliminating the need to obtain both a construction loan and permanent mortgage
      • Insured by the Federal Housing Administration (FHA), which helps keep rates low
      • For Construction-to-Permanent, closing occurs before construction begins
      • 96.5% Maximum LTV
      • No payments due during the construction phase
      • Closing costs may be financed
      • 15 and 30 year fixed rates available
      • No re-qualification once construction is complete
      • A single closing reduces closing costs, saving your borrowers money

      What are the benefits?

      Single Closing Saves Time and Money

      With the FHA OTC loan, borrowers can secure financing for the purchase of the land, the construction and the home’s permanent mortgage in a single closing. Only one closing means only one set of closing costs, helping save money. It also allows the process to move forward without interruption from potential snags in financing other aspects later on.

      Low Down Payment
      • The FHA OTC loan’s maximum loan-to-value (LTV) ratio is 96.5%. This gives borrowers the freedom to close on the loan with as little as 3.5% down
      No Re-Qualifying

      • Once the construction phase is complete, the borrowers do not have to re-qualify for a permanent mortgage since the permanent loan is closed before construction begins
      Fixed Rates

      • Since the permanent mortgage is closed before construction begins, the fixed rates on FHA OTC loans will not be subject to change during the construction phase or at any point
      OTC Freedom Draw Schedule

      • In addition to the benefits of our One-Time Close Construction-to-Permanent program — all-in-one financing for construction, lot purchase, and permanent mortgage funding with one closing — the OTC Freedom draw schedule option provides flexibility and freedom. Among the many benefits of this option, your retailer clients will receive more of their money prior to construction completion, and they get the 10% they need for the manufacturer to start work — at first construction draw. OTC Freedom also allows retailers to partner with any modular or manufactured home builder they wish (subject to AFR approval). This option can only be used with FHA OTC transactions that require draws. Modular and manufactured homes only. Second-level qualification required for Retailers who wish to participate.

      Who is eligible for an FHA One-Time Close Loan?

      The FHA OTC loan product is available to any borrower who meets the minimum qualifying criteria. This includes first time and repeat buyers. Here are the basic requirements for FHA OTC loan approval:

      • Borrower must have contracted with a builder (must be licensed general contractor)
      • Borrower must be purchasing the land at closing, or currently own their property
      • At closing, after funds are disbursed to cover the purchase of the land, the balance of the mortgage proceeds must be placed in an escrow account to be disbursed as construction progresses
      • Amortization of the permanent mortgage must begin no later than the first of the month following 60 days from the date of the final inspection or issuance of the Certificate of Occupancy
      • Maximum loan amounts will vary by location
      • Minimum FICO of 620

      In which scenarios is the FHA One-Time Close Loan a good option?

      The FHA One-Time Close loan program can provide an ideal solution for the following borrower scenarios:

      • Building a new home on a vacant lot and in need of financing
      • Less-than-perfect credit rating
      • Not a lot of cash available for a down payment
      • Wants the security of a fixed interest rate
      • Having trouble finding an available home
      • Wants custom home features

      Buying a Home with the FHA One-Time Close Program

      The process of buying a home with the FHA One-Time Close Loan begins with the borrower’s pre-approval to ensure they meet the necessary income and credit guidelines.

      Next, the borrower must secure a general contractor or builder for the property and the lender must approve that builder. Once the builder has been confirmed, site selection begins.

      Next, the project must be approved. The builder will submit the figures in terms of cost to the lender. The lender will then review the construction plans and costs and structure the loan accordingly. A construction contingency (typically around 5%) is usually added to the loan in case of overages, changes or unforeseen costs that may come up during construction.

      Next, the loan is closed. The borrower provides the down payment while closing costs and escrows are handled. Now, construction can begin.

      After construction is complete, the borrowers are free to move in to their new home. No re-qualifying necessary.

      Refinancing Options

      Since the FHA One-Time Close Loan is designed for new construction on newly acquired land, refinancing isn’t an option through the program. For borrowers who own an existing home that they wish to refinance, a conventional refinance or the FHA’s 203(k) program would be better options. For current FHA borrowers, the FHA Streamline Refinance may be ideal.

      Other Programs to Explore

      If the FHA One-Time Close Loan program does not work for a scenario, perhaps one of these programs will better suit your borrowers’ needs:

      • VA One-Time Close, for eligible veterans and active duty military who are interested in building a new home
      • Fannie Mae HomeReady, designed to help low- to moderate-income borrowers achieve homeownership for as little as 3% down
      • To purchase a home or take cash out through a refinance: FHA 203(b)