Everything You Need to Know About One-Time Construction Loan Close in 2024
If you dream of building your perfect home but feel overwhelmed by the loan process, a one-time construction loan close might be the solution you need. This unique loan program combines financing for the construction of your home and the permanent mortgage into a single loan. It’s designed to save you time, money, and stress.
In this updated guide, we’ll cover everything you need to know about how a one-time construction loan close works, the benefits, eligibility requirements, and why it’s an excellent choice for borrowers in 2024. Whether you’re a first-time homebuyer or planning to build your dream home, this program could make the process easier than you think.
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What Is a One-Time Construction Loan Close?
A one-time construction loan close is a specialized mortgage that allows you to finance the cost of land, the construction of a home, and the permanent mortgage in one single loan. Unlike traditional construction loans, which require two separate closings—one for the construction phase and another for the permanent mortgage—this program simplifies the process by rolling everything into one.
Key Features of a One-Time Construction Loan Close:
- One application and one closing.
- Combines construction costs and permanent financing.
- It saves money on closing costs and eliminates the need to requalify.
- No payments are required during the construction phase.
This program is a game-changer for many homebuyers, making it easier to build a home without the hassle of multiple loans and approvals.
Benefits of a One-Time Construction Loan Close
Why choose a one-time construction loan close over other loan options? Here are some compelling reasons:
- Saves Time and Money: With one application and one closing, you reduce paperwork and administrative fees. Traditional construction loans often involve two closings, which means double the costs for title insurance, appraisals, and more. A one-time close eliminates this extra expense.
- Simplifies the Loan Process: Because the financing is combined, you don’t have to worry about requalifying for a second loan once construction is complete. This removes a significant stress point for many borrowers.
- No Payments During Construction: During the construction phase, you won’t need to make monthly payments. This is a huge relief for many borrowers juggling rent or other living expenses while their home is being built.
- Flexibility With Land: This loan can be used to purchase land, or if you already own land, the equity can be applied toward your down payment. This makes the program versatile for a wide range of borrowers.
How Does a One-Time Construction Loan Close Work?
Here’s a step-by-step look at how the process works:
- Application and Pre-Approval:
- The first step is to get pre-approved. This ensures you meet the program’s minimum credit score and income requirements.
- Choosing a Builder:
- It would be best if you worked with a licensed and approved builder. The builder will act as the general contractor, managing all aspects of the construction process.
- Loan Closing:
- Once your application is approved and your builder is verified, you’ll close on the loan. At this point, the funds for construction are made available, and the land is purchased if applicable.
- Construction Phase:
- The builder begins construction, and funds are disbursed in stages (known as “draws”) or withheld until the home is complete, depending on the agreement.
- Final Inspection and Conversion:
- Once the construction wraps up, a thorough final inspection is carried out to confirm that your new home is ready for you to move in. The loan smoothly converts into a permanent mortgage at this stage, making the process even easier for you.
Eligible Property Types for One-Time Construction Loans
Not all homes qualify for this program. Eligible property types include:
- Stick-built homes (traditional site-built houses).
- Modular homes (prefabricated homes assembled on-site).
- Manufactured homes (double-wide only).
Ineligible Properties:
- Single-wide manufactured homes.
- Condominiums.
- Niche homes, such as log cabins, bamboo homes, or storage container homes.
- Multi-unit properties or multiple homes on a single lot.
For most borrowers, the program focuses on primary residences only, so investment properties and vacation homes are not eligible.
Loan Programs Offering One-Time Construction Loans
At Gustan Cho Associates, the one-time close construction loan is available through government-backed programs, including:
- FHA Loans: Requires a 3.5% down payment.
- VA Loans: No down payment is required for eligible veterans and active-duty service members.
- USDA Loans: No down payment for properties in eligible rural areas is required.
These programs allow borrowers with lower down payments to build their dream homes.
Minimum Credit Score Requirements
To be eligible for a one-time construction loan close, you should have a minimum credit score 620 for FHA, VA, and USDA loans. If your credit score is higher, you could benefit from even better terms, including potentially lower interest rates. This flexibility offers a supportive path for many borrowers!
What About the Land?
- You can purchase the land as part of the loan.
- If you already own the land, its equity can be used toward your down payment.
- Land gifted to you or inherited can also be used, reducing your out-of-pocket costs.
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Builder Requirements
The success of your construction journey truly depends on selecting the best builder for your needs. To ensure a smooth process, here are the key requirements to consider:
- The builder must be licensed and certified.
- The builder must handle the entire project as a “turn-key” solution, including all site improvements.
- Owner-builders (those who plan to manage the construction themselves) are not allowed.
- The transaction must be at arm’s length, meaning you cannot have a personal or business relationship with the builder.
Before approving your loan, Gustan Cho Associates will verify your builder’s credentials to ensure they meet these standards.
Fees and Costs
The administration fee is a one-time charge that covers all construction-related costs, including:
- Underwriting. See our AUS BLOG for more information.
- Inspection fees.
- Interim construction interest.
- Title updates.
- Draw fees (if applicable).
The good news is that this fee is typically included in the builder’s contract and does not require you to pay additional out-of-pocket expenses.
Seller Concessions
Seller concessions can be used to cover closing costs. For example:
- FHA loans offer the advantage of allowing seller concessions of up to 6%. This means you can receive financial help from the seller, making your home purchase even more feasible.
- VA and USDA loans also allow seller contributions, though the limits vary.
If your builder offers concessions, they can significantly reduce your closing costs.
How Draws Work During Construction
Your builder can choose between two options:
- Periodic Draws:
- As your construction progresses, the funds will be released in stages based on the milestones achieved. This approach ensures you receive the necessary support as you make each step forward in your project.
- Requires periodic inspections and additional administrative oversight.
- No Draws:
- All funds are disbursed after construction is complete.
- Streamlines the process and often results in lower administrative fees.
Why Choose Gustan Cho Associates for Your One-Time Construction Loan Close?
At Gustan Cho Associates, we specialize in helping borrowers navigate the complexities of construction loans. Here’s what sets us apart:
- Expertise in FHA, VA, and USDA programs.
- Competitive interest rates and flexible terms.
- You’ll have a dedicated team by your side to assist you at every stage of the journey.
- Fast pre-approvals and streamlined builder verification.
Final Thoughts
A one-time construction loan close offers a convenient and cost-effective way to build your dream home. Combining construction financing and a permanent mortgage into one loan saves time, reduces costs, and avoids unnecessary stress.
At Gustan Cho Associates, we’re here to make the process as smooth as possible.
Ready to take the first step? Contact us today to learn more about how you can qualify for a one-time construction loan close and start building your future.
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Frequently Asked Questions About One-Time Construction Loan Close:
Q: What is a One-Time Construction Loan Close?
A: A one-time construction loan close combines the financing for building a home and the final mortgage into one single loan. You only need to apply once and close once, saving you time and money.
Q: How is a One-Time Construction Loan Close Different from a Regular Construction Loan?
A: Regular construction loans require two closings—one for construction and another for the permanent loan. A one-time construction loan close simplifies this into a single closing.
Q: Do I have to Make Payments While My Home is Being Built?
A: No! One of the best benefits of a one-time construction loan close is that you don’t have to make payments during the construction phase.
Q: Can I Use a One-Time Construction Loan Close to Buy Land?
A: Yes, you can. This loan lets you finance the land purchase, build your home, and roll everything into a single loan.
Q: What Types of Homes Can I Build with a One-Time Construction Loan Close?
A: Eligible homes include traditional site-built homes (stick-built), modular homes, and double-wide manufactured homes. Condos, single-wide homes, and niche homes like log cabins aren’t eligible.
Q: What are the Credit Score Requirements for a One-Time Construction Loan Close?
A: You need a credit score of at least 620 for FHA, VA, or USDA one-time close loans. A higher score might help you get better terms, like lower interest rates.
Q: What if I Already Own Land?
A: If you already own land, the equity in your land can be used as part of your down payment, reducing your out-of-pocket costs.
Q: Do I need to Work with a Specific Builder for a One-Time Construction Loan Close?
A: Yes, your builder must be licensed and verified, and the project must be handled as a turn-key solution. Self-building or hiring unlicensed builders isn’t allowed.
Q: What Costs are Included in a One-Time Construction Loan Close?
A: The loan includes all construction-related costs like inspections, underwriting, title updates, and interest during construction. Many of these fees are built into the loan, so you won’t need to pay them separately.
Q: Can Seller Concessions Help Cover My Closing Costs?
A: Yes! For FHA loans, seller concessions can cover up to 6% of your costs. VA and USDA loans also allow seller contributions to help reduce your closing expenses.
This blog about “One-Time Construction Loan Close Mortgage Loan Program” was updated on 16th, 2024
