Building a home can be a complex process involving land purchases, construction financing, and a final mortgage. A one-time close construction loan, also known as a construction-to-permanent loan, simplifies this by combining all three phases into a single loan. This guide covers everything you need to know about one-time close construction loans, from loan types and benefits to eligibility and the application process.
What Is a One-Time Close Construction Loan?
A one-time close construction loan bundles land, construction, and permanent mortgage financing into one streamlined loan. This single-close structure allows you to manage all aspects of building your home under a single application, qualification, and closing process, saving time and reducing costs.
Key Benefits of a One-Time Close Construction Loan
1. Streamlined Process and Reduced Paperwork
Since a one-time close construction loan requires only one application, one qualification, and one closing, it eliminates the hassle of coordinating multiple loans. You’ll have a single appraisal, loan originator, and closing process, making it easier to focus on building your new home.
2. Cost Savings Through a Single Closing
With only one closing event, you avoid the extra closing costs that come with separate construction and mortgage loans. Closing costs typically range from 3-6% of the total loan amount, so consolidating these fees into a single transaction can result in significant savings.
3. Fixed Interest Rate for Peace of Mind
Most one-time close loans offer a fixed interest rate from the start, so you’re protected from potential rate hikes during construction. Fixed rates ensure predictable payments, making budgeting easier as you transition from construction to long-term mortgage payments.
4. Increased Financial Security
This loan type minimizes financial surprises by providing a single contract that outlines costs upfront. Borrowers experience steadier financing throughout the project, with no unexpected rate changes or extra loan processes once construction is complete.
Types of One-Time Close Construction Loans
One-time close construction loans are available through several major loan programs, each designed to fit different borrower needs.
USDA Single-Close Loan
For low- to moderate-income borrowers in USDA-eligible rural areas, the USDA single-close loan is an affordable option with 100% financing, meaning no down payment is required. This government-backed program reduces lender risk and covers all aspects of construction, including land, building fees, landscaping, and more.
VA One-Time Close Loan
The VA one-time close loan is designed for eligible veterans and active-duty military members. This loan allows qualified borrowers to finance 100% of their home’s cost, with no down payment required, making it one of the most accessible options for veterans.
FHA One-Time Close Loan
The FHA one-time close loan provides affordable financing with low down payment requirements (typically 3.5%). This program is available to borrowers with lower credit scores, making it an ideal choice for first-time homebuyers seeking to build a primary residence.
Conventional (Fannie Mae) One-Time Close Loan
The Fannie Mae single-close loan is a conventional option with down payments as low as 5%. This loan type is suitable for buyers with solid credit and income history, offering fixed-rate terms of 15, 20, or 30 years for long-term predictability.
Jumbo One-Time Close Loan
For borrowers constructing high-value homes that exceed conventional loan limits, the jumbo one-time close loan provides a streamlined solution, bundling all phases of construction into one package.
Eligibility Requirements for a One-Time Close Construction Loan
Credit Score Requirements
Eligibility varies by loan type:
- USDA and VA: No minimum credit score, though lenders typically prefer scores above 620.
- FHA: Minimum credit score of 580 (some lenders may allow 500 with higher down payments).
- Conventional (Fannie Mae): Minimum credit score of 700 for most borrowers.
Down Payment Requirements
- USDA and VA: No down payment required.
- FHA: 3.5% down payment.
- Conventional: 5% minimum down payment.
- Jumbo: Typically requires a higher down payment, around 10-20%, based on lender guidelines.
Documentation Needed
Prepare to provide:
- Personal tax returns and proof of income
- Existing debt and asset statements
- Property information, including land purchase agreements (if applicable)
- General contractor details and construction plans
How to Apply for a One-Time Close Construction Loan
To get started, contact Federal Hill Mortgage—our experienced loan partners are here to guide you through every step of the process:
- Initial Application: Submit your financial information and construction plans for review.
- Builder Selection and Approval: Our loan partners will help ensure your chosen contractor meets all lender requirements.
- Loan Underwriting and Approval: We’ll work closely with you through the underwriting process to approve financing for your project.
- Closing and Construction Phase: Attend a single closing event, then make interest-only payments during construction.
- Transition to Permanent Mortgage: Once construction is complete, we’ll seamlessly convert your loan into a standard mortgage with regular payments.
Frequently Asked Questions (FAQs) About One-Time Close Construction Loans
-
What types of properties are eligible?
One-time close loans are available for single-family residences, owner-occupied homes, modular and manufactured homes, and sometimes even high-value or jumbo properties.
-
How do interest rates work?
Most loans offer fixed rates that lock in during the construction phase, providing predictable payments and financial stability.
-
Can I use a one-time close loan to refinance an existing loan?
Yes, many lenders offer one-time close loans for refinancing, allowing homeowners to consolidate construction debt into a permanent mortgage.
Take Control of Your Mortgage Journey Today.
Get Expert Guidance on One-Time Close Construction Loans
Whether you’re building your first home, a vacation retreat, or a high-value property, a one-time close construction loan can make the process simpler and more affordable. At Federal Hill Mortgage, our experts are ready to help you navigate each step of the process—from determining eligibility to coordinating with builders and closing your loan.
Start My Application
