Benefits of a One-Time Close Construction Loan

June 6, 2022

Do you want to build a new home from the ground up on your own lot? If you are interested in a construction loan there are a variety of options between conventional loans, FHA construction loans, and other programs.

But you also have a choice between a construction loan with two applications, two loans, and two closing dates and a loan that only has a single application, one loan, and one closing date.
Construction loans that have only one application and closing date are known as One-Time Close construction mortgages, also known as construction-to-permanent mortgages.

Construction loans that feature two applications and closing dates are simply known as construction-only loans; you’ll need to apply for a mortgage loan separately from the construction loan. That can cause complications in some circumstances, and many borrowers find the One-Time Close version to be less stressful as a result of having only one application and closing.

There are other benefits to a One-Time Close loan. For example, interest rates for a construction-only loan may be higher, which may be a factor in your decision-making process. How much higher depends on some variables, it is a good idea to compare loan options to see which is the more competitive.

For a construction-only loan, certain expenses may be covered including the cost to buy land, hire contractors, buy materials, and pay for permits.

For these two-close loans, the lender may require you to have a cash reserve. Part of the motivation for this is that borrowers sometimes change their minds about the project and decide to upgrade their original selections for kitchen features, bedrooms, etc.

The cash reserve part of your mortgage planning is an important one to consider; these may be required for One-time close mortgages, too. In general, fees for a construction-only loan may be higher and that could eat into those reserves.

A One-Time Close loan is potentially less expensive since you have just one group of closing costs to pay. A single closing date also avoids the potential issue of not being able to qualify for the second mortgage once the construction phase of the project is finished.

With a two-close loan, if you lose your job or have major financial setbacks before applying for the actual mortgage you could find yourself in a difficult position where loan approval is concerned.

No matter which loan option you choose, one factor is common. Building a home takes longer than buying existing construction. Don’t be in a hurry when choosing your construction loan options, and plan for delays. Construction projects may experience them depending on supply chain issues, labor shortages, the length of time it takes to obtain permits, and more. You’ll get to the end of the project, but don’t expect the journey to be without a few speed bumps along the way.


 FHA, VA, and USDA: One-Time Close Loans


Want More Information About One-Time Close Loans?

We have done extensive research on the FHA (Federal Housing Administration) and the VA (Department of Veterans Affairs) One-Time Close Construction loan programs. We have spoken directly to licensed lenders that originate these residential loan types in most states and each company has supplied us the guidelines for their products. We can connect you with mortgage loan officers who work for lenders that know the product well and have consistently provided quality service. If you are interested in being contacted by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.

FHA.com provides information and connects consumers to qualified One-Time Close lenders to raise awareness about this loan product and to help consumers receive higher quality service. We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.

Please note that investor guidelines for the FHA and VA One-Time Close Construction Program only allows for single family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes). In addition, the following homes/building styles are not allowed under these programs, including but not limited to: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes, Dome Homes, Bermed Earth Sheltered Homes, Tiny Homes, Accessory Dwelling Units, or A-Framed Homes.

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1. Send your first and last name, e-mail address, and contact telephone number.

2. Tell us the city and state of the proposed property.

3. Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good - (640-679), Fair – (620-639) or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.

4. Are you or your spouse (Co-borrower) eligible veterans? If either of you are eligible veterans, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio per VA will allow – there are no maximum loan amounts as per VA guidelines. Most lenders will go up to $1,000,000 and review higher loan amounts on a case-by-case basis. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.