One Time Close Construction Loan: Complete Guide for 2025

One Time Close Construction Loan: Complete Guide for 2025

If you’re planning to build your dream home, one of the most important financing decisions you’ll make is how to pay for it. Many borrowers choose a one time close construction loan — also known as a single-close construction-to-permanent loan — because it simplifies the process, saves money on closing costs, and locks in mortgage terms from the start.

This guide will explain what a one time close construction loan is, how it works, its benefits and drawbacks, eligibility requirements, and tips for getting approved.

What Is a One Time Close Construction Loan?

A one time close construction loan is a type of financing that combines:

1. Construction loan – Short-term funding to cover the cost of building your home, disbursed in stages as the work progresses.
2. Permanent mortgage – Long-term financing that begins once construction is complete.

With this option, you close once at the beginning of the process, instead of having separate closings for the construction loan and the mortgage. This is why it’s often referred to as a single-close loan.

How a One Time Close Construction Loan Works

1. Application and Approval
   • Apply with a lender that offers one time close construction loans.
   • Submit building plans, permits, cost estimates, and information about your builder.
   • Lender reviews your credit, income, and the project’s feasibility.
2. Closing
   • You sign all documents for both the construction and permanent phases at a single closing.
   • Pay one set of closing costs.
3. Construction Phase
   • Funds are released in draws tied to construction milestones (foundation, framing, roofing, etc.).
   • Inspections verify each stage is complete before funds are disbursed.
   • During this time, you typically make interest-only payments on the funds drawn.
4. Conversion to Permanent Loan
   • Once the home is finished and passes inspection, the loan automatically converts into a standard mortgage with fixed or adjustable rates.
   • You begin making full principal and interest payments based on your chosen loan terms.

Key Features of a One Time Close Construction Loan

• Single Closing: One application, one approval process, and one set of closing costs.
• Interest-Only Payments During Build: Keeps monthly payments manageable during construction.
• Rate Lock Option: Many lenders allow you to lock in your permanent mortgage rate before construction begins.
• Term Flexibility: Choose from 15-, 20-, or 30-year mortgage terms after construction.

Benefits of a One Time Close Construction Loan

• Cost Savings: Closing costs are paid only once, which can save thousands of dollars compared to two separate loans.
• Convenience: Fewer administrative steps mean a smoother, faster process from application to move-in.
• Rate Protection: You can secure your mortgage interest rate before construction starts, protecting against future rate increases.
• Budget Certainty: Knowing your long-term mortgage terms upfront helps you plan your finances more effectively.

Potential Drawbacks

• Less Flexibility: You can’t shop for different mortgage rates after construction is complete because the permanent loan terms are set at the start.
• Strict Requirements: You must meet lender qualifications for both construction and permanent financing upfront.
• Builder Limitations: Lenders often require working with licensed, insured, and approved builders.

Eligibility Requirements

• Credit Score: 680+ for conventional one time close loans; FHA, VA, and USDA versions may allow lower scores.
• Down Payment: 10–20% for conventional; as low as 0–3.5% for government-backed loans.
• Debt-to-Income Ratio (DTI): Usually ≤ 43%.
• Licensed Builder: Must be approved by the lender with a proven track record.
• Detailed Plans & Budget: Blueprints, permits, and itemized cost breakdowns.

How Payments Work

During Construction:

• Interest-only payments on the funds drawn.
• Example: $400,000 loan; $100,000 drawn for foundation → interest charged only on $100,000.

After Construction:

• Loan automatically converts into a standard mortgage with full principal and interest payments.

Types of One Time Close Construction Loans

1. Conventional One Time Close
   • Backed by Fannie Mae or Freddie Mac.
   • Requires higher credit scores and down payments.
2. FHA One Time Close
   • Down payment as low as 3.5% for borrowers with 580+ credit scores.
   • More lenient credit requirements.
3. VA One Time Close
   • Zero down payment for eligible veterans and active-duty service members.
   • No private mortgage insurance (PMI).
4. USDA One Time Close
   • Zero down payment for eligible rural and suburban properties.
   • Income and location restrictions apply.

Step-by-Step Process

1. Prequalification
   • Determine your budget and eligibility.
2. Select a Lender
   • Choose one experienced in one time close construction loans.
3. Choose a Builder
   • Must be licensed, insured, and lender-approved.
4. Prepare Documentation
   • Provide financial statements, building plans, permits, and signed construction contract.
5. Loan Approval
   • Lender approves the loan for both construction and permanent phases.
6. Closing
   • Sign all documents and pay one set of closing costs.
7. Construction Phase
   • Funds released in draws as each stage is completed and inspected.
8. Conversion
   • Loan automatically becomes a standard mortgage upon completion.

Tips for Success

• Work With Experienced Professionals: Choose a lender and builder who specialize in one time close loans.
• Get Preapproved Early: Know your budget before finalizing home plans.
• Budget for Contingencies: Set aside 10–15% for unexpected expenses.
• Understand the Draw Schedule: Ensure it matches your builder’s project timeline.
• Monitor Progress: Stay involved to keep the build on schedule and within budget.

Frequently Asked Questions

One Time Close Construction Loan Checklist

• Check your credit and finances
• Choose an experienced, licensed builder
• Prepare detailed plans and budget
• Get preapproved with a single-close lender
• Understand draw schedules and rate lock terms

Final Thoughts

A one time close construction loan offers convenience, cost savings, and peace of mind by combining the construction and mortgage phases into a single loan with one closing. By locking in terms from the start, you avoid the hassle and expense of securing separate financing.

To make the most of this option, choose a lender and builder with experience in single-close transactions, budget carefully, and understand all terms before breaking ground. With proper planning, you can transition smoothly from an empty lot to your finished home without the stress of multiple loans.