Have you ever heard of VA one-time close loans or FHA one time close loans? If not, wonder no more. This article will introduce you to these types of loans as well as help you understand the difference between the two to help you determine which one is best suited to your situation.
What is a VA one time close loan?
For family members of military personnel that are on active duty, relocating can be a very stressful process for them. Moreover, once these families are ready to settle, they have to deal with the challenges that come with constructing a house.
This is the reason why the VA one time close construction loan was created. With this type of loan, construction loan service members that are eligible are able to not only finance the construction but the lot purchase as well not to mention the permanent mortgage.
Some of the appealing aspects of this type of VA home loan are:
- No down payment required
- Low interest rates
However, there are even more benefits for borrowers that are buying a modular or manufactured home. It eliminates the redundancy of a second closing hence borrowers do not have to be concerned about requalifying or incurring extra costs.
What is an FHA one time close loan?
Also known as the construction to permanent mortgage, the FHA one time close loan does not require the borrower to qualify twice. Other types of mortgages require the borrower to qualify twice. Usually the borrower will apply the first time to get the construction and then apply a second time in order to qualify for the mortgage itself.
An FHA one time close loan avoids this redundant process by using a single loan as well as one closing date. It also includes requirements as well as specific dates underlining how the construction will get to the construction phase. Click here to read more.
Below are some of the differences and similarities that exist between an FHA one time close loan and a VA one time loan close.
When applying for an FHA one time close loan, you should expect that the lender will ask you to provide them with the following:
- A certificate of occupancy as well as copies of the building permit
- Proof of three different inspections namely; framing, footing, and final that will be performed by an FHA Roster Inspector. You will also need to provide a Compliance Inspection Report.
- A 10-year warrant including a final inspection issued by an FHA Roster Inspector as well as jurisdiction over the property.
- Proof of three inspections, that is, framing, footing and final that is done by a local authority that has jurisdiction over the property.
For properties that are already under construction, the lender is expected to acquire one of the following:
- A final inspection and a 10-year warranty with an FHA Roster Inspector or the local authority with jurisdiction
- Certificate of occupancy and copies of the building permit.
- Similarities between the FHA one time close loan and the VA one time close loan
- One of the similarities that exist between these two types of loans is the financial qualification. In both cases, the borrower must have a minimum FICO score as determined by both the lender and the FHA/VA.
- The house also should be built in the United States or in any of its protectorates.
- Both the FHA and VA one time close loans require occupancy. This means that these loans can only finance the construction of a house that the borrower intends to live in.
- Another similarity, is that these types of loans are impacted by the loan limits that are stipulated by both the VA and FHA.
Differences between the FHA and VA one time close loans
Unlike the VA one time close loan, with an FHA one time close loan, the borrower is required to make a down payment. When borrowing an FHA one time close loan, you are expected to make a down payment of at least 3.5% of the purchase price.
On the other hand borrowers who access financing using the VA one time close loan can choose to make a down payment on their loan. By doing so, they will become eligible for a reduced VA funding fee that will depend on the size of their down payment. Unfortunately, Plantation FHA loans lack this feature.
You need to know though that lenders might have minimum requirements that are different from lenders. Find out from your lender how your down payment requirements will affect your loan transaction.
When applying for the VA one time close loan, you need to be aware that the VA funding fee does not get tied to the labor completion on the project. Instead, it is due within 15 days of the closing date. You will have to ask your lender about amounts, timing and other factors that will be affected by lender requirements, as well as VA loan rules.