Building your dream home is an exciting process that allows you great flexibility from location, style and upgrades.

You will need to decide on how you will finance your new construction home. The “One Time Close” loan is an excellent option and may also be referred to as:

  • Construction to perm loan or CTP
  • Single close loans
  • All in one loan
  • Construction conversion loans

 

Here are the facts about this type of loan and why it is a great tool when building your home.

  1. A straight CONSTRUCTION LOAN is a short term loan designed only for the period of time that you are building the home. The homebuyer takes out a loan for the construction of the home, then once the home is completed, the construction loan ends, and the homebuyer is required to pay off the construction loan with either a long-term loan or cash.  The construction loan and end loan are separate transactions which could come from one or multiple lenders.  Each loan has closing costs and different interest rates.
  2. A ONE-TIME CLOSE loan is used for the construction phase, then converts to permanent financing once the construction is complete. Thus, the name One Time Close. The process is streamlined with one mortgage loan and one closing.  Therefore, the homebuyer only applies for one loan reducing the time and costs of multiple loans.  This also protects the homebuyer against unforeseen financial circumstances during the construction period or beyond.

 

ONE-TIME CLOSE LOANS VS. MULTIPLE LOANS

Building a new home poses many concerns for homebuyers.  The traditional route requires two loans.  The first loan provides the funds to build the home. The second loan is the long-term financing once construction is complete and the construction loan needs to be repaid.  The issue with this approach is that life can be tricky sometimes and circumstances may change preventing the second loan from closing as anticipated.

The one-time close construction loan concept is designed to avoid all the uncertainty, provide only one loan, one interest rate and reduce costs.  The old process left homebuyers struggling to put together a second loan, or negotiating an end loan, when they should be finished with financing and enjoying their dream home.

 

Why a One-Time Close Construction Loan?

  1. You only qualify one time. Take the stress out of loan qualification with the One-Time Close construction loan.  You make your loan application and qualify at the beginning of the construction process, then, close on one loan.  One-Time Close loans also ensure that the terms agreed upon cannot expire and the loan documents are up to date.  What a relief from the typical, stressful two loan process.

 

  1. Less risk for borrowers with a One-Time Close loan. This comes in the form of fewer loans to qualify for during the building process. Consider this.  Sometimes circumstances change such as a job change, short term cash flow problems or a bad investment that could result in losing your dream home and the money you already invested in the project.  Sometimes life presents unforeseen circumstances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Once the homebuyer qualifies for their One-Time Close loan at the beginning of the process, the risk is taken away and the terms are locked in from the beginning of the process through the permanent financing. Therefore, if your financial situation changes, you will not be at risk of losing your home.

 

  1. One Appraisal for property value. Appraisals are always a challenge for any real estate financing.  When multiple loans are involved, a lower appraised value on the permanent loan can endanger your financing when you are ready to move-in. This risk is eliminated with the One-Time Close construction loan.  There is one appraisal prior to your loan closing, period.

 

  1. Interest Rates are fixed. Whether you select a 3/1, 5/1 or 7/1 ARM, the rate remains constant from the initial loan closing, though construction and until the fixed term expires.  This offers predictability, piece of mind and no surprises.

 

  1. Primary Residence or Second Home financing available. The One-Time Close loan allows for financing on both a primary residence or a second home.

 

  1. Closing costs for one loan only. When there is more than one loan, the homebuyer pays closing costs for each loan which can cost thousands of dollars.  One-Time Close loans avoid additional closing fees and allow the homebuyer to put their money back into the new home.