A One-Time Close Construction Loan, also known as a construction-to-permanent loan, streamlines the process of building your primary residence by combining the construction financing and permanent mortgage into a single loan. This approach eliminates the need for multiple loans and closings, simplifying your journey to homeownership.

How the Program Works

1. Single Approval Process: You undergo one approval process that encompasses both the construction phase and the permanent mortgage.
2. One Closing: There’s only one closing, reducing closing costs and administrative tasks.
3. Construction Phase: During construction, funds are disbursed in stages (known as “draws”) to your builder as milestones are completed.
4. Conversion to Permanent Mortgage: Upon completion of construction, the loan seamlessly transitions into a standard mortgage without the need for additional underwriting or closing.

Step-by-Step Application Process

1. Initial Consultation: Discuss your plans with a lender experienced in construction loans to understand your options and eligibility.
2. Pre-Approval: Submit a mortgage application along with necessary financial documents to get pre-approved for a specific loan amount.
3. Select a Qualified Builder: Choose a licensed and insured contractor who meets the lender’s requirements.
4. Submit Construction Plans: Provide detailed plans, specifications, and a construction contract for lender review.
5. Property Appraisal: An appraisal is conducted to estimate the future value of the home based on the plans and comparable properties.
6. Underwriting: The lender reviews all information to assess your eligibility and the project’s feasibility.
7. Closing: Sign the loan agreement and other necessary documents. At this point, if you don’t already own the land, funds can be used to purchase it.
8. Construction Phase: Construction begins, with funds released to the builder in predetermined stages.
9. Transition to Permanent Loan: After construction is completed and a final inspection is conducted, the loan converts to a permanent mortgage.

Key Requirements

• Credit Score: Lenders typically require a minimum credit score, often around 620, though some programs may have different thresholds.
• Down Payment: Down payment requirements vary by loan type:
  • Conventional Loans: May require a higher down payment, often around 20%.
  • FHA Loans: Allow for a down payment as low as 3.5%.
• Land Ownership:
• • Already Own Land: If you own the land, its equity can contribute toward your down payment.
  • Purchasing Land: If you don’t own the land, the loan can include funds to purchase it, provided it’s acquired at or before closing.
• Qualified Builder: You must select a licensed and insured contractor approved by the lender.
• Debt-to-Income Ratio (DTI): Lenders assess your DTI to ensure you can manage the additional debt.

Benefits of One-Time Close Construction Loans

• Cost Savings: One closing reduces closing costs and associated fees.
• Interest Rate Protection: Locking in your interest rate from the beginning protects against market fluctuations.
• Simplified Process: Combining two loans into one streamlines the financing process.

Considerations

• Builder Selection: Choosing a reputable builder is crucial, as their performance directly impacts your project’s success.
• Loan Limits and Terms: Be aware of the loan limits and terms specific to the loan program you choose.
• Documentation: Prepare for extensive documentation, including detailed construction plans and contracts.

Embarking on building your primary residence with a One-Time Close Construction Loan can be a rewarding experience, offering flexibility and control over your home’s design and construction. Consult with a knowledgeable lender to explore your options and guide you through the process.