FHA Construction Loans | Requirements and Process

This ARTICLE Is About The FHA One-Time Close Construction Loans On Home Purchase

The FHA One-Time Close Construction Loans is one of the most popular home mortgage program at Capital Lending Network, Inc.

  • The U.S. economy was booming prior to the coronavirus outbreak in 2020
  • The historic low unemployment rate under 3.5%
  • The Dow Jones Industrial Averages hit 29,000 for the first time in U.S. history
  • Homeownership was at its peak in history
  • Mortgage rates were setting record lows month after month
  • The housing market was booming with no sign of any correction
  • The booming economy and housing market was frustrating for homebuyers

There was far more demand for housing than the inventory of homes.

Skyrocketing Home Prices

Due to such a strong demand for homes, home prices kept on going up making many homebuyers being priced out of the market. Then, with no warning, the coronavirus outbreak hit the nation like a freight train. The whole country came to a halt. The Dow Jones plummeted as low as 18,000 and other stock market indices followed in a downward spiral. Unemployment rates tanked to close to 20% and many economists and analysts were predicting a 35% unemployment rate by the end of 2020. Over 50 million Americans filed for unemployment. Most economists and analysts forecasted a Great Recession and economic meltdown in 2020 that would be worse than the 2008 real estate and credit meltdown. Many pre-approved homebuyers suspended their home shopping until further notice. Homebuyers were listening to the so-called experts and economists and hoping for a substantial housing market correction. The government and Trump Administration were on high alert mode. President Donald Trump signed The CARES ACT which offered economic stimulus to businesses and individual taxpayers. Many Americans thought Joe Biden winning the 2020 Presidential election would for sure ruin the U.S. economy and plummet the housing market. The Biden Administration sure did ruin the economy. Inflation soared and everything Joe Biden touched turned to disaster. However, the housing market kept on booming with home prices skyrocketing.

Opportunity Of Building A New Construction Home During A Booming Housing Market

Is building a new home during the housing boom a bargain?

The Central Bank lowered interest rates to zero percent for the first time in history which plummeted mortgage rates:

  • All of a sudden, the economy started to recover
  • The coronavirus economic recovery was the fastest recovery in world history
  • Unemployment numbers improved month after month
  • The most recent unemployment numbers are at 6.9%
  • The housing market is stronger now than it was prior to when the coronavirus outbreak hit the nation in February 2020
  • Homebuyers never saw the housing correction experts were predicting
  • Many homebuyers have been priced out of the booming housing market
  • However, HUD’s FHA One-Time Close Construction Loans gives homebuyers an opportunity to purchase a brand new construction home with an FHA loan
  • FHA One-Time Close Construction Loans are becoming very popular throughout the nation

In this article, we will discuss and cover the FHA One-Time Close Construction Loans On Home Purchase.

Benefits Of The FHA One-Time Close Construction Loans

Who doesn’t want to purchase a brand new house. Most do. However, it takes time and planning to buy a new construction home. Homebuyers can now get financing in the total costs in building a new construction home with FHA One-Time Close. Construction Loans. FHA One-Time Close Construction Loans allow homebuyers to finance the cost of a lot, cost and all expenses of building a home, and convert the lot and construction costs into a permanent FHA loan after the construction has been completed. So, the total cost of a new build home will be under one mortgage and one closing with FHA One-Time Close Construction Loans. Prior to the introduction of FHA One-Time Close Construction Loans, most borrowers needed a 20% to 30% down payment for construction loans offered at banks. Now with only 3.5% of the after the complete appraised value of the home, anyone who can meet the minimum HUD Agency Mortgage Guidelines can qualify to build a new home with an FHA loan with one closing.

Understanding How FHA One-Time Close Construction Loans Work

How FHA One-Time Close Construction Loans Work

There is no doubt there is more work and red tape involved when building a new home. It is not as easy as buying a home that has been built. However, it is not all that difficult either if you set proper expectations and understand the mortgage process. Every case is different but we will outline the basic general steps on how the FHA One-Time Close Construction Loans work. For more detailed information please contact us at Capital Lending Network, Inc. at 262-716-8151 or text us for a faster response. Or email us at contact@gustancho.com. The team at CLN Mortgage Group is available 7 days a week, evenings, weekends, and holidays.

FHA One-Time Close Construction Loans enable homebuyers to get a package mortgage loan program that will finance the lot, construction homes, and turn the temporary construction loan to a permanent end loan after the construction is complete.

Steps On Qualifying For FHA One-Time Construction Loans

Borrowers need to meet all minimum HUD Agency Guidelines on FHA Loans since One-Time Construction Loans are FHA loans. The homebuyer needs to come up with a 3.5% down payment of the completed value of the home and have a minimum credit score of 580 FICO.  Borrowers who already own the lot and are paid for can use the value of the lot as the down payment in the construction loan transaction. The borrower is in charge of choosing a general contractor. The general contractor will need to be vetted and approved by the mortgage company.cAfter the general contractor has been vetted and approved by the mortgage company, the mortgage process begins.

First Step In The Mortgage Process 

The first step in the FHA one-time close construction loan process is to shop for a lot to build your new home. Some borrowers may already own the lot. Others who need to purchase the lot will get a maximum budget on how much they can spend on a lot purchase. You need to go over your plans with the general contractor/builder. The builder will refer you to his architect. Many architects already have copyrighted drawings they have used before which you can go over and make your own custom modifications.

Construction Budget

The maximum construction budget depends on how much you qualify for up to the maximum FHA loan limit for the area you are building. Your builder will come up with a scope of work and plans. Costs of construction need to be detailed and itemized.

Submitting Plans And Cost Of Construction To Lender

Once the contractor/builder/architect has completed the plans and cost of construction, they are submitted to the lender for review and approval. The file is processed by an assigned new construction mortgage processor. The processor makes sure all documents and paperwork are in order so she can submit them to a new construction mortgage underwriter. A new construction mortgage underwriter is assigned to the file. Once the mortgage underwriter has reviewed the plans and costs and has qualified the borrower, the underwriter will issue a conditional loan approval.

The Mortgage Process

The file goes back to the new construction mortgage processor so she can clear the list of conditions requested by the mortgage underwriter. The mortgage processor in charge of the project will contact the general contractor/builder and/or other parties and gather the list of conditions. Once all conditions are gathered, the mortgage processor will submit the conditions for a clear to close. After the mortgage underwriter has reviewed the conditions and is satisfied with the file, the underwriter will issue a clear to close. With the clear to close, the closing department of the mortgage company will contact the title company and arrange a closing date.

Start Of Construction

Once the loan has closed, the construction project can begin. Once the construction project is complete and a certificate of occupancy is issued, the borrower can move in and the loan is then converted to a permanent FHA loan with a 30-year fixed-rate mortgage. FHA One-Time Close Construction Loans is a great loan program for homebuyers whose dream is to buy a brand new home. If you need to get started to see if you qualify and start the mortgage process, please contact us. The team at Capital Lending Network, Inc. is available 7 days a week, on evenings, weekends, and holidays. Capital Lending Network, Inc. NMLS 1657322 is a mortgage company licensed in multiple states with no lender overlays.

Peter has 7+ years of experience in residential lending. He is a licensed Realtor in the Chicagoland area.


Jennifer Ann Turner


I was on your website on Gustan Cho Associates and I was directed to Capital Lending Network and I have a couple of questions about you construction loans at Capital Lending Network. Great article and enjoyed and learned a lot from reading it. However, it does not mention about vacation and/or second homes. Do you have construction loans for vacation homes? We own a piece of land in New Hampshire and are thinking about building a Morton Home. I don’t have set figures but we are hoping to build it for max 150K a 2 bedroom around 1000 square feet very basic. We’d like to put 20% down so we don’t get hit with PMI, does the land count toward our 20%? Also what would the Debt to income ratio be?

Thank you for your time.
Jennifer Turner

I have talked to Gustan Cho before and he was so nice and took a lot of time with me in going over our questions. I have since texted and emailed Mr. Cho and he has always returned my texts and emails so promptly. We filed for bankruptcy 3 yrs ago. Then we retired to the Virgin Islands. After hurricane Irma our HOA went from $800 a month to $2000 a month. On a retirement income that was impossible. We listed our place for sale immediately. However, this caused us to be late on our mortgage one time. Then covid caused us to be late two times. We have a contract on our place and we’re getting out of that horrible situation. We will payoff the mortgage and have $110k. We want to buy a house here in Baton Rouge for $380000. Putting $70,000 down financing $310,000. Can you help?

I have high income from 2 jobs but one of the jobs I started less than 2 years. If I don’t have both jobs incomes, I can’t make it. Can I get some help on this? Knowing that I work as a professor with excellent credit history.

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