Are you dreaming about constructing a home that you will love forever, the one where you will grow old with your best friends? The FHA One-Time Close Construction Loan is here to save the day. This special loan program lets you layout the cost of installing the land, the purchase of the land and the subsequent mortgage in one loan, making it more efficient and cutting the cost to save you money. But before you do, you’ll want to give some thought to another option: the Conventional One-Time Close Construction Loan. Knowing the distinctions will help you decide which one is in your best financial interest.
What Is an FHA Construction Loan
The FHA construction loan program grants a short-term loan that transitions into a long-term permanent loan after your home is built. The main advantage of this program is that the purchase and construction costs in a single mortgage loan. So instead of borrowing once in the form of a short-term loan to buy a site to carry out the needed construction, and then repaying that loan by borrowing again, you effectively borrow just once. And that means lower fees and other closing costs. However, a slightly higher rate is possible.
Highlights
- The borrower must have contracted with a licensed builder to begin construction.
- The borrower must be purchasing the land at the closing of the construction loan, or have owned the land for six months or less at the date of the case number assignment.
- After funds at closing are disbursed to cover the purchase of the land, the amount of the mortgage must be put in an escrow account to be disbursed as the construction process moves forward.
What Is an FHA One-Time Close Loan?
The FHA One-Time Close Construction Loan is a government-backed mortgage that enables borrowers to have a new home constructed with a single loan that then converts to a traditional home loan. Its intended for borrowers who don’t have pristine credit, and a lot of money for a down payment. The loan only requires 3.5% down, which means it is a great option for more buyers.
This product is geared toward first-time homebuyers, or people who can meet the relaxed credit and income standards of the FHA. But it does have proximate limitations in terms of the county’s loan limits, or, you have the mandatory mortgage insurance premiums that increase the overall bill.
FHA vs. Conventional One-Time Close Construction Loans
Here’s a comparison table that outlines the key differences between these two loan types:
| Feature | FHA One-Time Close | Conventional One-Time Close |
| Down Payment | As low as 3.5% | Typically 10–20% |
| Credit Score Requirement | As low as 620 | Usually 680+ |
| Mortgage Insurance | Required upfront & monthly | Not required with 20% down payment |
| Loan Limits | Set by county | More flexible; can be higher |
| Property Type | Primary residences only | Primary, secondary, or investment homes |
| Flexibility | Limited by FHA guidelines | More flexible loan terms |
| Loan Cost Over Time | Generally higher due to MIP | Potentially lower with strong credit |
| Ideal For | Low-to-moderate income borrowers | Buyers with strong credit and assets |
Is Conventional a Better Choice?
If you meet the requirements, a conventional construction loan could be a more long-term investment. Although FHA is to some the safety net for those who haven’t saved enough and/or have poor credit, conventional rewards those who did their financial planning before the home build.
If at least 20 percent down payment is not feasible, a conventional loan will not leave you stuck with ongoing mortgage insurance, and you could also secure a decent interest rate if your credit is excellent. You will also find more flexibility in what kinds of structures you’re permitted to build, or the location that you can choose which can be a huge advantage if you’re building in rural areas.
Another key advantage? If you expect to be in the home for several years, a conventional mortgage without monthly mortgage insurance can save thousands in the long run.
When FHA Is the Right Fit
But don’t write off that FHA mortgage just yet. If you have low savings and less than stellar credit, the FHA One-Time Close Construction Loan makes homeownership a viable option for you. Learn more Features and Benefits One-time close feature saves time and money by minimizing the cost to spend over multiple loans It secures your construction and permanent financing in one application and one closing, meaning you only have to qualify once Eliminates the risk that ownership might change once construction is complete.
And as it’s one of the most generous of all the lenders when it comes to the debt-to-income ratio (i.e., the amount of debt you have relative to your income), and it’s supported by the Federal Housing Administration, lenders can be more flexible in granting loans to borrowers whom they might otherwise consider to be higher-risk by traditional standards.
FHA loans can also be quicker to close in some instances, potentially even when you’re working with builders who are accustomed to FHA guidelines.
Looking Ahead: Is FHA Still Worth Considering in 2025?
Absolutely. Though traditional loan options are appealing to some, the FHA One-Time Close Loan is still a combination worth considering, especially if you are a first time buyer and/or have lower savings. And one would assume that the FHA programs would adapt and quite possibly expand in the future to offer even more competitive rates and product choices.
If you’re thinking about building a home soon, knowing your options now can help you make the right decision and possibly beat any changes to lending rules.
How Many FHA Loans Can You Have ?
You have access to multiple FHA loans throughout your entire life. The beautiful thing is that you don’t necessarily need to be a first-time home buyer to qualify for this opportunity. However, this does not imply that you can get an FHA loan in quick succession.
Generally, Your FHA Loan is Designed to Finance Your Primary Residence – Not Investment Properties
As stated earlier, the FHA mortgage loan program is designed to enable borrowers to own a home of their desire. Although there are instances where an FHA loan is given for other reasons aside from financing a home, this is usually under specific cases.
You Must Pay Off Your Existing FHA Loan Before Securing Another
Having pending FHA mortgage payments is a mitigating factor in accessing two FHA loans. Before you can be qualified for a second FHA loan, you must have cleared your previous loan. You can’t have two mortgages running simultaneously.
Other Reasons Why You Can Get Multiple FHA Loans
The following circumstances will enable you to access a second FHA loan:
- If your new job or a job opportunity causes you to relocate, and the commute from your current home is beyond a reasonable distance.
- If you jointly purchase a home with an FHA mortgage but will no longer be living in that home due to certain factors, such as divorce.
- If you’re a co-borrower on an FHA loan but now would like to purchase your own home.
Can a Conventional Construction Loan be as good or better than a FHA Construction Loan?
Right now we are only offering the conventional one time close construction loan and VA one time close construction loan. FHA is usually for someone who has less down payment so their loan is riskier and a little more expensive than conventional in most cases but not all cases. 20% down payment conventional cuts out mortgage insurance premiums and usually has a better interest rate if the credit is strong. Low credit borrowers with less money to put down would be compared more to a 5% down conventional loan. In most cases a conventional loan has a better rate than an FHA loan.
FHA has mortgage insurance and conventional less than 20% down will have mortgage insurance too. Whether it’s PMI or MI; it’s typically a higher premium the less money you put as a down payment. FHA, one time close construction loans are not as prominent and mainstream as conventional one time close construction loans. Because there are a lack of lenders that are providing the FHA one time close Construction Loan. It means that the cost could be higher. Typically a conventional construction loan can compete Very well with any type of FHA one time Construction that is currently on the market available for borrowers.
Final Thoughts
Deciding on the right construction loan for you isn’t an easy decision one that depends on your financial situation, the type of project you are undertaking and how much risk you’re willing to take. If you have strong credit and can make at least a 10% down payment (20% will reap the most benefits), a conventional construction loan could provide more long-term savings and flexibility. On the other hand, if your budget is a little stretched right now, the FHA One-Time Close loan would allow you to explore new construction options with less money out of pocket.
As you investigate One Time Close Construction Loans for 2025, be certain you work with a lender that knows what you need and can explain the basic differences between the FHA and non-FHA versions of these loans. If you qualify, also look into other specialized products such as VA One-Time Construction Loans for veterans and active military members.
