Construction of a home is not only thrilling, but also complex. Financing is one of the greatest challenges: ordinary construction financing may require numerous closings, increased down payments, and complex deadlines. And that is where Fannie Mae single-close construction loans are. This guide is a break down of Fannie Mae Construction Loan Requirements , a comparison between VA and FHA construction alternatives and easy to follow tips which can be taken in a real world manner so that the decision towards which route to take is easy to make.
What is a Fannie Mae single-close construction loan in plain English?
A Fannie Mae single-close construction loan (sometimes referred to as construction-to-permanent or one-time close loan) combines the expenses of land acquisition (when necessary), construction financing, and the permanent mortgage into a single loan and a single closing. Rather than taking on an interim loan to periodically keep your building alive and a second mortgage later, you qualify just once and automatically graduate to your long-term mortgage after construction completion. This reduces the amount of paperwork, can reduce the overall close out expenses and assists in locking in financing in advance.
Key Fannie Mae construction loan requirements (what lenders typically look for)
Below are the core eligibility and structure points you should expect when applying:
Eligible property types and purpose
Most single-family site-built homes, certain modular and manufactured homes, and owner-occupied new builds can qualify under Fannie Mae construction rules. Lenders will check that the construction plan and property meet Fannie Mae’s property standards.
Income, credit, and reserves
Fannie Mae construction loans are standard products and therefore the underwriting criteria are not as lenient as the government loans. Anticipate lender conditions related to credit score, debt to income ratio, and reserve funds – these will differ by lender and program. Other lenders who provide one-time-close programs supported by Fannie Mae can have higher credit scores (which is usually in the high 600s to 700s) than FHA or VA.
Down payment and loan-to-value (LTV)
The top plus of the single-close path is reduced down payment options that are offered as opposed to the conventional construction loans. In a few of the Fannie Mae products, borrowers can close with as little as 5 percent down (up to 95 percent LTV) under certain conditions, but not all lenders offer it, and it requires that the borrower fit the profile set forth by the lender in overlays. Never assume that there are no LTV/down-payment regulations with your lender.
Construction timeline and conversion limits
Fannie Mae’s single-close construction loans have specific timing rules: the construction period usually cannot have a single segment longer than 12 months and the total construction period cannot exceed 18 months (extensions are limited). After construction is complete, the temporary loan converts to the permanent mortgage. These timing rules are important for scheduling builders and inspections.
How Fannie Mae single-close compares to VA and FHA construction loans
VA construction loan / VA construction home loan
VA construction loan options are available to eligible veterans and service members through VA-approved lenders. The VA program can offer powerful benefits like no down payment in many cases and competitive rates — but you must work with a lender and builders who participate in VA construction programs and meet VA inspection/approval rules. VA loans also require proof of eligibility (Certificate of Eligibility) and the lender will verify income, credit, and occupancy.
FHA construction loan (One-Time Close)
The One-Time close construction loan by FHA enables borrowers to purchase and construct property land in one batch with a single closing and in most cases; the loan requires the consumer to pay as low as 3.5 percent down payment to the lender under the condition of county limit and FHA regulations (Elizabeth, 2011). FHA construction loans are practical in borrowers that have less credit scores or less down payment yet they have FHA mortgage insurance and they should be in accordance with HUD/FHA requirements.
Bottom line: Fannie Mae single-close may offer lower mortgage insurance and conventional terms (with potentially lower long-term costs) but can require stronger credit and reserves. FHA and VA offer lower down payment pathways for borrowers who qualify — each program has trade-offs.
5 Actionable tips for getting approved and a smoother build
- Get pre-qualified by a lender experienced in single-close construction loans. Not all lenders offer Fannie Mae one-time close, and each has its own overlays. Working with a lender experienced in construction-to-permanent loans prevents surprises later.
- Line up a licensed, approved general contractor and a clear contract. Lenders require construction contracts and draws schedules; use a reputable builder with verifiable references and a contractor payment schedule tied to inspections.
- Budget reserves and realistic contingency. Lenders often require cash reserves for the borrower; plan for at least several months of mortgage payments plus a contingency fund (10%–15% of construction costs is common) for unforeseen expenses.
- Compare total costs — not just the rate. A single-close loan saves on multiple closing fees and can lock in an interest rate before construction, but compare interest, mortgage insurance, and closing costs across Fannie Mae, FHA, and VA options for your situation.
- Know the timelines and inspections ahead of time. Fannie Mae’s conversion windows and VA/FHA inspection requirements are strict. Build a schedule that fits within allowed construction periods to avoid converting to a two-close loan or needing an extension.
Click Here – Learn More About Fannie Mae Construction Loans & Related Options
Long-tail keywords you might want to target while searching or working with lenders
- how to qualify for a Fannie Mae construction loan
- Fannie Mae construction loan requirements for single-family homes
- VA construction home loan eligibility and process
- FHA one-time close construction loan down payment
Using these phrases when you search or ask lenders will help you get focused, program-specific answers.
FAQ
Q: What credit score do I need for a Fannie Mae construction loan?
A: It varies by lender and product; many lenders prefer scores in the high 600s to 700s for conventional one-time close programs. Ask your lender for their minimums.
Q: Can I use gift funds for a Fannie Mae single-close construction loan down payment?
A: Some circumstances allow gift funds, but Fannie Mae and lender rules govern when gifts are acceptable. Check borrower contribution rules with your lender and the Selling Guide.
Q: Does Fannie Mae insure the construction loan?
A: Fannie Mae purchases eligible conventional loans; the single-close product is structured to meet Fannie Mae delivery requirements and standards. The loan itself is a conventional mortgage product, not federal insurance like FHA.
Q: Which is better: Fannie Mae, VA, or FHA construction loan?
A: “Better” depends on your situation. Use Fannie Mae if you prefer conventional terms and lower long-term costs and you meet credit/reserve requirements. Use FHA if you need a lower down payment (3.5%) or have lower credit scores. Use VA if you’re an eligible veteran and want a zero-down option and can meet VA builder/lender rules.
Final thought- make the build doable, not stressful
A single-close Fannie Mae construction loan can simplify a multi-step process of financing into one easy, affordable transaction – ease the approvals, cut down on multiple closing fees and commit your long-term mortgage plans. But it’s not one-size-fits-all. Compare VA construction loan options, Fannie Mae and FHA one-time close deals with companies that specialize in building construction financing and apply the actionable tips listed above to keep your project on time and within budget.
