The FHA One-Time Close (OTC) Construction Loan, also known as a construction-to-permanent loan, is a powerful financing option for homebuyers who want to build their dream home without the hassle of multiple loans and closings. This government-backed program, insured by the Federal Housing Administration (FHA), combines land purchase (if needed), construction costs, and the permanent mortgage into a single loan with just one closing.

What Is an FHA One-Time Close Loan?

Traditional home construction often requires two separate loans: a short-term construction loan to fund the build, followed by a permanent mortgage once the home is complete. This means two closings, two sets of closing costs, and potentially re-qualifying for the mortgage after construction.

The FHA One-Time Close loan simplifies everything. You secure financing for the entire project upfront, close once, and the loan automatically converts to a standard long-term FHA mortgage (typically 15- or 30-year fixed-rate) when construction finishes and a Certificate of Occupancy is issued. This streamlines the process, reduces paperwork, locks in your interest rate early, and saves on duplicate fees.

It’s ideal for building:

• Stick-built homes
• Modular homes
• Manufactured homes (new, for primary residences; single-wides typically excluded)

The home must be your primary residence (owner-occupied).

Key Benefits of the FHA One-Time Close Loan

• Low Down Payment — As low as 3.5% (based on a credit score of 580 or higher), making it more accessible than many conventional construction loans that require 20%+ down.
• Single Closing — One set of closing costs, one application process, and no need to re-qualify or shop for a new mortgage post-construction.
• Competitive Rates and Terms — Backed by FHA, these loans often feature lower rates than non-government options, with fixed-rate terms up to 30 years.
• Flexible Credit Requirements — FHA guidelines are more lenient on credit scores and debt-to-income ratios compared to conventional programs.
• Includes Land Purchase — If you don’t already own the lot, the loan can cover it along with construction.
• Predictable Payments — Your permanent mortgage rate is set at the initial closing, so you know exactly what your payments will be once you move in.

During construction, interest is typically paid only on the funds drawn (interest-only phase), keeping payments lower until completion.

How the Process Works

1. Pre-Approval and Planning — Work with an FHA-approved lender experienced in OTC loans. Provide detailed construction plans, a licensed builder contract, specifications, timeline, and budget.
2. Appraisal — An FHA-approved appraiser evaluates the plans and lot to determine the “as-completed” value.
3. Single Closing — You close on the full loan amount (covering lot + construction + fees). The lender holds funds in escrow and disburses them in draws as work progresses.
4. Construction Phase — The builder completes the home under lender oversight, with inspections at key stages.
5. Conversion — Upon completion, a final inspection confirms the home meets standards. The loan converts to permanent financing—no second closing required.

The entire loan amount cannot exceed FHA county limits (for 2026, the baseline is around $541,287 in most areas, up to $1,249,125 in high-cost areas). The final amount is based on the lower of construction costs or the appraised “as-completed” value.

Who Qualifies?

To be eligible, you generally need:

• A minimum credit score of around 580 (for the 3.5% down payment; higher scores may improve terms)
• Debt-to-income ratio typically up to 43-50% (FHA is flexible)
• Steady income and employment history
• A licensed, experienced builder approved by the lender
• Approved plans and a realistic construction timeline (often 12 months or less)

Mortgage insurance premiums (MIP) apply: an upfront premium (about 1.75%) and annual MIP for the life of the loan if your down payment is under 10%.

Why Consider an FHA One-Time Close Loan?

Building a custom home is exciting, but financing can be overwhelming. The FHA OTC program makes it easier and more affordable, especially for first-time builders or those with moderate credit. It removes barriers like high down payments and dual closings, letting you focus on designing and enjoying your new home.

If you’re in the market to build in areas like North Carolina (or anywhere else), consult a specialized lender offering FHA construction options. They can guide you through eligibility, current rates, and county limits to see if this fits your vision.

Ready to build? Start by getting pre-approved—your future home might be closer than you think!