One-Time Close Construction Loans
- As Low as 5% Down Payment
- 700 Minimum Credit Score
- Construction and Permanent Financing in One Mortgage
- Interest Only Payments During Construction
- $766,550 Maximum Loan Amount
One-time close construction loans, also known as construction-to-permanent loans or CTP loans, are a type of mortgage financing that combines the construction loan and the permanent mortgage into a single loan transaction. These loans are designed for borrowers who want to build a new home rather than purchasing an existing property.
Here are some key features of one-time close construction loans:
- Simplified Process: With a one-time close construction loan, borrowers only need to go through the loan application and approval process once. The loan is structured to cover both the construction phase and the permanent financing, eliminating the need for a separate loan for each stage.
- Construction Phase: During the construction phase, funds are disbursed to the builder or contractor in stages, typically based on predetermined milestones or completion percentages. Borrowers typically make interest-only payments during the construction phase, paying only the interest on the amount disbursed for construction.
- Conversion to Permanent Loan: Once the construction is complete, the loan automatically converts to a permanent mortgage without the need for additional paperwork or underwriting. This eliminates the need for a separate closing and associated costs typically associated with transitioning from a construction loan to a permanent mortgage.
- Interest Rates and Terms: The interest rates on one-time close construction loans can be either fixed or adjustable. The specific interest rate and terms are determined at the time of loan application and can vary based on factors such as the borrower's creditworthiness, loan-to-value ratio, and market conditions.
- Down Payment: One-time close construction loans typically require a down payment, although the exact amount may vary depending on factors such as the borrower's credit profile and the lender's requirements. The down payment is usually based on a percentage of the total cost of the project, including the land acquisition and construction costs.
- Builder Approval: To qualify for a one-time close construction loan, the builder or contractor involved in the project usually needs to be approved by the lender. Lenders typically have specific criteria for approving builders, including their experience, reputation, financial stability, and adherence to building codes and regulations.
One-time close construction loans can provide borrowers with a streamlined and convenient financing option for building their dream home. It's important to work with a lender experienced in construction lending and to carefully review the terms and requirements of the loan. Additionally, engaging reputable builders and contractors is crucial to ensure the successful completion of the construction project.
Frequently Asked Questions
A one-time close construction loan is a type of mortgage that combines the construction loan and permanent financing into a single transaction, eliminating the need for separate loans for construction and mortgage phases.
One-time close construction loans are typically offered by banks, credit unions, and mortgage lenders. These financial institutions work with borrowers to facilitate the construction process and provide financing for both the construction phase and the permanent mortgage.
With a one-time close construction loan, the borrower obtains financing to cover the costs of building a new home. The loan funds are used to pay for construction expenses, including materials, labor, and permits. Once the construction is complete, the loan automatically converts into a traditional mortgage, known as the permanent financing.
One of the main advantages of a one-time close construction loan is convenience. Borrowers only need to go through the loan application and approval process once, saving time and hassle. Additionally, these loans often offer competitive interest rates and terms, providing cost savings over separate construction and mortgage loans.
Qualification criteria for one-time close construction loans vary by lender, but generally, borrowers must meet standard mortgage eligibility requirements, including credit score, income, and debt-to-income ratio. Additionally, borrowers must have detailed construction plans and a qualified builder to oversee the project.
One-time close construction loans can be used to finance the construction of primary residences, secondary homes, and investment properties. Eligible property types may include single-family homes, condominiums, townhouses, and modular homes.
While one-time close construction loans are primarily designed for new construction projects, some lenders may offer renovation loan options that provide financing for major home improvements or remodels. Borrowers should inquire with their lender about specific renovation loan programs and eligibility requirements.
During the construction phase, funds from the one-time close construction loan are typically disbursed to the builder in predetermined stages, known as "draws." These draws occur at key milestones throughout the construction process, such as completion of the foundation, framing, and finishing touches. The lender may conduct inspections to verify progress before releasing funds for each draw.
Borrowers applying for a one-time close construction loan will need to provide documentation similar to that required for traditional mortgages, including proof of income, assets, and liabilities. Additionally, detailed construction plans, cost estimates, and builder contracts may be required to assess the feasibility of the project.
While one-time close construction loans offer convenience and cost savings, there are potential risks to consider. Delays or cost overruns during construction could impact the loan timeline and budget. Additionally, borrowers may face stricter qualification criteria and higher interest rates compared to traditional mortgages. It's essential for borrowers to carefully evaluate their financial situation and thoroughly research lenders before committing to a one-time close construction loan. By addressing these frequently asked questions, borrowers can gain a better understanding of one-time close construction loans and make informed decisions about financing their new home construction projects.
Pros of One-Time Close Construction Loans:
Simplified Process: One-time close construction loans streamline the financing process by combining construction and permanent financing into a single loan, eliminating the need for multiple closings.
Rate Lock: Borrowers can lock in their interest rate at the beginning of the construction phase, providing protection against potential rate increases during the build.
Potential Cost Savings: With only one set of closing costs, borrowers may save money compared to traditional construction-to-permanent loans, which require separate closings for the construction and permanent phases.
Easier Qualification: Since borrowers only need to qualify once for the entire loan amount, the qualification process may be simpler compared to separate construction and permanent loans.
Convenience: One-time close construction loans offer convenience for borrowers by providing a single point of contact and a cohesive loan structure throughout the construction process.
Cons of One-Time Close Construction Loans:
Higher Interest Rates: One-time close construction loans may have slightly higher interest rates compared to traditional mortgage loans, reflecting the added risk associated with financing a construction project.
Limited Lender Options: Not all lenders offer one-time close construction loans, limiting borrowers' options and potentially leading to less competitive terms.
Risk of Delays: Construction projects are inherently unpredictable, and delays can occur due to factors such as weather, material shortages, or contractor issues. Delays could result in increased carrying costs for the borrower. Minimum Down
Payment: One-time close construction loans typically require a minimum down payment, which may be higher than what is required for a traditional mortgage loan.
Limited Flexibility: Once the loan closes, changes to the construction plan may be challenging or costly to implement, as the loan terms are based on the initial project specifications.
Before opting for a one-time close construction loan, borrowers should carefully weigh the pros and cons and consider their individual financial situation, construction timeline, and risk tolerance. Consulting with a knowledgeable lender or financial advisor can help borrowers make informed decisions about their financing options.