One-Time Close Construction HUD Section 184 Indian Housing Loan
A real money-saver.
If you're thinking about building your own home, the HUD 184 loan program makes it easy by allowing for single-close construction loans. Here's how it works.
Conventional construction loans involve two separate loans. The first is a short-term loan (usually six to eight months) that finances the design and construction of the home. Once construction is complete, the borrower takes out a permanent loan to pay off the first loan and finance the mortgage on the home. Each loan is a distinct transaction involving separate applications, separate closing signings and separate closing costs.
With the HUD 184 one-time close construction loan, you only take out one loan to cover the cost of construction and the permanent mortgage loan all in one transaction. This saves time and money because you only have to apply for one loan and you avoid the closing costs on the second loan.
In addition, the down payment can be significantly less than dual-construction loans. HUD requires only a 2.25% down payment, compared to 20% for most conventional construction loans.
If you qualify for HUD 184 and want to build your own home, the one-time close construction loan will save you time and money.
Loan details.
With HUD's one-time close construction loans, you can use the funds for the construction of new homes or the rehabilitation of existing homes. After construction is completed, these loans then become the permanent financing for the new or rehabbed home.
HUD 184 also allows you to acquire land as part of the construction loan or to build on land you already own. If you already own the land, you may be able to utilize its value for the down payment on the loan. Either way, HUD requires a 2.25% investment (down payment) based on the total cost of acquisition.
As part of the loan, the lender will require you to:
- Hire a professional general contractor or builder to oversee the program.
- Provide copies of professionally prepared plans and specifications for the home. All designs must meet minimum HUD requirements regarding quality of construction.
- Provide a signed construction agreement between you and the builder.
- When selecting a contractor or builder, make sure they are licensed and bonded and have experience working with one-time close construction loans.
Construction details.
The HUD 184 single-close construction loans allows up to six months to complete the construction process.
During the allotted construction time, the builder may take up to six draws against the construction line to finance that phase of construction. The builder must submit a preliminary draw request along with the plans and specs. Each draw request then requires an inspection by the lender to insure that construction has been completed on that phase.
The lender usually requires a 10% contingency fund to offset potential cost overruns on the project. For example, if the construction contract is for $200,000, $20,000 must be added to the required loan amount to cover unexpected costs. If these funds are not used during construction, they get credited back to the loan as a principal reduction.
Get prequalified.
After the cost savings, the best part about single-close construction loan is its simplicity. You only fill out one application. You only go through one closing. And you can even fill out the application online.
To save even more time, get pre-qualified for your loan before signing any agreements with contractors or builders. That way, you know in advance how much home you can afford to build, which makes it easier when designing the home and estimating construction costs. It also gives the builder more incentive to complete the design and estimate phase in a timely manner since they know you have already qualified for the loan.
Prequalification is quick and easy. Bank2's online application form only takes a few minutes to fill out. And in most cases we'll let you know within 48 hours whether you qualify.
To pre-qualify for your single-close construction loan, hit the "Apply Now" button here.
If you have any questions about the process, please contact a Bank2 representative at (405) 949-7000.
