If you want to build your home from the ground up on your own lot, you have plenty of options, starting with 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.
The loans that require only one application and closing date are known as One-Time Close construction mortgages.
They are also known as construction-to-permanent mortgages. The loans that require two of everything are simply known as construction-only loans and you must apply for the mortgage loan separately from the construction loan.
What are the basic benefits of choosing a One-Time Close loan aside from the obvious? Your ability to have single loan approval and one closing date are important. But just as critical?
Knowing that interest rates for a construction-only loan may be higher, for example, might change your mind about that option knowing that One-Time Close loans may be more competitive.
For a construction-only loan the following costs may be covered by the loan:
- Land acquisition costs
- Contractor labor
- Building materials
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 once it is planned. They may wish to have upgraded kitchens or bedrooms or may want better siding.
Whatever the reason, the cash reserve issue is an important one to consider when saving for the mortgage. A cash reserve may be required for a One-time close mortgage, too but the overall fees for a construction-only loan may be higher and that could eat into those reserves.
A One-Time Close loan may be less expensive because you only have one set of closing costs to pay. Having only one set of settlement fees is a big help in the cash reserve department and can help you save money on the loan overall.
And having only one closing date sidesteps the “what if?” issue of having a construction-only loan, getting through the construction phase but then having trouble qualifying for the second loan (the mortgage).
That situation can happen if you lose your job between the two loans, or if your financial picture radically changes.
No matter which loan option you choose, it’s good to remember that building a home takes longer than buying existing construction. It does not pay to be in a hurry when choosing your construction loan options, give yourself plenty of time to let the construction project finish for best results.
You may have to take into consideration some important variables including how COVID-19, supply chain issues, and related problems may have affected the construction market in your area.
Want More Information About One-Time Close Loans?
One-Time Close Loans are available for FHA, VA and USDA Mortgages. These loans also go by the following names: 1 X Close, Single-Close Loan or OTC Loan. This type of loan allows for you to finance the purchase of the land along with the construction of the home. You can also use land that you own free and clear or has an existing mortgage.
We have done extensive research on the FHA (Federal Housing Administration), the VA (Department of Veterans Affairs), and the USDA (United States Department of Agriculture) 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 with 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 one licensed construction lender in your area, please send responses to the questions below. All information is treated confidentially.
OneTimeClose.com provides information and connects consumers to qualified One-Time Close lenders in an effort 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, VA, and USDA One-Time Close Construction Program only allow for single-family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes). You CANNOT act as your own general contractor (Builder) / not available in all States.
In addition, this is a partial list of the following homes/building styles that are not allowed under these programs: Kit Homes, Barndominiums, Log Cabin or Bamboo Homes, Shipping Container Homes, Dome Homes, Bermed Earth-Sheltered Homes, Stilt Homes, Solar (only) or Wind-Powered (only) Homes, Tiny Homes, Carriage Houses, Accessory Dwelling Units and A-Framed Homes.
Your email to firstname.lastname@example.org authorizes Onetimeclose.com to share your personal information with a mortgage construction lender licensed in your area to contact you.
- Send your first and last name, e-mail address, and contact telephone number.
- Tell us the city and state of the proposed property.
- 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.
- Are you or your spouse (Co-borrower) eligible veterans? Down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio 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 an eligible veteran, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.