FHA Construction 3.5% Down Including Land

FHA Construction 3.5% Down Including Land

While most people think of using an FHA mortgage to purchase a home that has already been constructed, there is an FHA program designed specifically for those who wish to purchase land and build a home upon it. This FHA construction program, called the FHA One Time Close (OTC) loan, is very similar to standard FHA mortgages with the exception that it can be used to build a home instead of buying one. It combines the permanent home mortgage with a construction loan, which is why it’s referred to as a one time close loan—if a buyer were to get the two separately, they would have to pay for two closings.
  • 4. FHA 3.5 and VA 100 Construction Loan Including Land

  • How Does it Work?

    First, the applicant will need to find a plot of land and work out the costs of building a home on it. In some cases, the applicant will have to do this on their own, but in others, they may have help. For example, an applicant may use an FHA OTC loan to purchase an un-built house in a housing development.

    Once the land and building costs are calculated and the loan is received, the buyer will need to pay 3.5% of the loan as a down payment. This amount is figured based on the total cost (i.e., land cost and building costs combined). The closing costs can also be included in the loan, as can the interest payments that would need to be made during the construction of the house.

    If the applicant already owns the land that they are building on, the equity they have built up will act like a credit towards the down payment. In many cases, this means that the applicant will not have to make any down payment at all.

    FHA OTC Requirements

    In order to qualify for an FHA OTC loan, the applicant will have to meet the following requirements:

    • Have a credit score of at least 640
    • Have a debt-to-income ratio of no more than 45%
    • Have not declared bankruptcy in the past two years
    • Have not had a foreclosure in the past three years
    • Have not had any credit collections of more than $5,000 in the past two years
    • Have no open tax liens or judgments