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FHA Single Close Construction Loans

Building a home can be both exciting and daunting. With the right lender, your new home becomes a reality without the barriers and challenges of a complicated financing process or large upfront costs.

An FHA single close construction loan puts building a single-family home within your reach, offering low down payment options and simplified financing. Purchase land or build on property you already own with a single loan for both the construction and long-term mortgage of your new home.

What is an FHA Single Close Construction Loan?

The FHA single close construction loan is a popular option for building single-family homes because it offers financing that is easier to qualify for and an overall process that makes paying for and building your home simpler to manage. 

The Federal Housing Administration (FHA) insures FHA single close construction loans to improve economic development and make financing more attainable for homebuyers wanting to build homes.

Because these loans are government-backed by the FHA, interest rates are kept competitively low and borrowers can make a minimum down payment of only 3.5%.

With an FHA single close construction loan, you can finance the purchase of your lot, the construction of your new home, and the long-term mortgage that will be needed to afford your home once it’s built.

This streamlines the process, allowing you to close on your home loan once, rather than having to secure two or more separate loans for each stage of the process.

You qualify once and have a single appraisal, loan originator, and closing process. This reduces the time it takes to build and move into your new home, protects you from unforeseen circumstances down the road, and saves you from paying double or triple the closing costs.

Home construction is complicated and requires many moving parts. Single close construction loans are made to help simplify the process.

How to Get an FHA Single Close Construction Loan

If you’d like to see whether you qualify for an FHA single close construction loan, connect with us. To get you started, we’ve outlined the steps and qualifications needed to help you understand the process.

The Financing Process

By sharing basic information about the home you want to build, we’ll work with you to see if an FHA single close construction loan meets your needs and whether you can get pre-approved for the loan.

Next, we’ll begin a more in-depth underwriting process to review your income, credit, ability to repay the loan, and other eligibility requirements. This will include demonstrating proof that you either currently own or will purchase a lot on which your property will be built.

We’ll also work with you and your general contractor to determine what the cost and timeline will be to build your home and finance it. We’re with you through each step, leading to a simple and efficient closing so that you can move forward with building your home.

Once the loan closes, you’ll begin construction on your new home within 30 days of the closing date. Your construction team will provide you with regular updates on the progress of your home. We’ll manage the construction phase, including ordering draw inspections, any state-required surveys and inspections, and FHA requirements.

Loan Requirements to Meet

These are some of the standard requirements often needed to qualify for an FHA single close construction loan. If you have questions about these requirements, we’re here to help.

  • You need to be purchasing the land you will build on at closing (or currently own the land).
  • In most cases, it’s best to have a credit score of 640 or higher.
  • You need a minimum down payment of 3.5%, as there is a 96.5% minimum Loan-to-Value (LTV) ratio for FHA loans.
  • You must have a contract with a licensed general contractor who will build the home.
  • An appraisal will need to be done to assess the value of the project.
  • The funds from the loan must be placed in an escrow account that will be disbursed to cover construction costs.

FHA Single Close Construction Loan FAQs

Financing the build and long-term mortgage of your new home is an important step to beginning this process. It’s ok to have questions. We’ve compiled answers to the frequently asked ones, but don’t hesitate to ask more.

How do FHA single close construction loan interest rates compare to other construction loans?​​

Because FHA single close construction loans are backed by the FHA, their interest rates are kept competitively low without requiring borrowers to have a high down payment and credit score.

Interest rates for all single close construction loans vary based on a variety of factors including your income and finances, credit score, the location where you want to build, and loan amount.

To know what interest rate your situation would qualify for, get in touch with one of our loan advisors for more specific information.

What other loan options are there besides an FHA single close construction loan?

An FHA single close construction loan is only one of the many options for those who are interested in building their own home.

Some additional options you might want to consider include other specialized construction loans. This includes loan programs for veterans, active-duty military, and spouses through the VA.

A USDA loan might work well for building a home in a rural area. Or there are Fannie Mae construction loans designed for people with low-to-moderate-income levels.

We can help you determine what loan program is best for your situation.

What costs are required to close an FHA single close construction loan?

There are closing costs associated with processing any loan, and the costs of a single close construction loan are comparable to standard mortgages. They include costs for the lender to service the loan, as well as an appraisal and other fees.

With a single close loan, you only pay closing costs once and your closing package includes a single promissory note and one deed.

This is a unique benefit that many other financing options for home building don’t offer. With other loan types, borrowers often need two or more loans to finance the actual build and their long-term mortgage, meaning they pay closing costs for each of those loans.

How does the timeline work for financing my new home?

Once your loan closes, your general contractor will begin construction on your new home within 30 days of the loan closing date.

We’ll help manage the construction budget and timeline as the home is being built. During this time, the funds from the loan that were placed in an escrow account will be disbursed to cover construction costs.

When the construction project is completed, you’ll be given a Certificate of Occupancy, meaning you can now move into your new home. The amortization of your permanent mortgage must begin 60 days after you receive this certificate.

How does my lender get involved with the construction of my new home?

We have an in-house single close construction management team. Using our years of experience and home-building expertise, our experts — with support from the FHA — will review and approve documentation from every stage of construction.

This includes project budget and timeline, planning and specifications, permits and inspection, and building code best practices.

At the start, you’ll want to find and engage a general contractor to build your home. Our builder vetting process ensures that all builders accepted into our program have a sterling record of on-time completion for their home projects. Quality, safety, and efficiency are top priorities.

Our team will help keep your project on track every step of the way. This allows potential problems to be dealt with before they can turn into major delays.

Our completely hands-free building process means you never need to worry about applying for building permits or arranging inspections as your construction takes shape. It is all handled for you. The documentation you might need in the future is centralized all in one place.