Construction Loans One Time Close: Complete Guide for 2025

Construction Loans One Time Close: Complete Guide for 2025

If you’re planning to build a home, you may be wondering how to simplify the financing process. Construction loans one time close, also known as single-close construction-to-permanent loans, combine the short-term financing needed for construction with the long-term mortgage into a single loan — and a single closing.

This guide will explain how one time close construction loans work, their benefits, requirements, and tips for finding the right lender to fund your build.

What Is a One Time Close Construction Loan?

A one time close construction loan is a mortgage product that finances:

• Construction of your home — funds are released in stages (draws) as the build progresses.
• Permanent mortgage — after construction, the loan automatically converts into a long-term mortgage.

Instead of applying for two separate loans and paying two sets of closing costs (one for construction and one for the mortgage), you close only once at the beginning.

How One Time Close Construction Loans Work

• Application and Approval
  • You apply with a lender offering one time close construction financing.
  • Lender reviews your credit, income, debt-to-income ratio, building plans, and builder credentials.
• Single Closing
  • The loan is closed before construction begins.
  • Closing costs are paid once, covering both construction and mortgage phases.
• Construction Phase
  • Funds are disbursed in draws tied to milestones:
  • Site preparation and foundation
  • Framing
  • Roofing and exterior
  • Interior finishes
  • Before each draw, an inspection verifies the work is complete.
  • During construction, you typically make interest-only payments on the amount drawn.
• Conversion to Mortgage
  • When construction is complete and the home passes final inspection, the loan converts to a standard mortgage.
  • You begin making full principal and interest payments based on the permanent loan terms.

Benefits of a One Time Close Construction Loan

• Single Closing: Pay closing costs once instead of twice, saving thousands of dollars.
• Rate Lock: Many lenders allow you to lock in your permanent mortgage rate before construction begins, protecting you from rate increases.
• Streamlined Process: Less paperwork and no need to requalify for a separate mortgage after construction.
• Peace of Mind: You know your mortgage terms upfront, so there are no surprises after the build.

Drawbacks to Consider

• Less Flexibility: Once closed, you can’t shop for a different mortgage rate after construction.
• Stricter Requirements: Lenders assess you for both construction and permanent phases upfront.
• Builder Approval: Must use a licensed, lender-approved builder.

Types of One Time Close Construction Loans

• Conventional One Time Close
  • Backed by Fannie Mae or Freddie Mac.
  • Requires higher credit scores (typically 680+).
  • Down payment: 10–20%.
• FHA One Time Close
  • Government-insured loan with lower credit score requirements (580+ for 3.5% down).
  • Primary residence only.
  • FHA loan limits apply.
• VA One Time Close
  • Available to eligible veterans, service members, and certain surviving spouses.
  • 0% down payment.
  • No private mortgage insurance (PMI).
• USDA One Time Close
  • For properties in eligible rural or suburban areas.
  • 0% down payment.
  • Income and property location restrictions apply.

Typical Requirements for a One Time Close Construction Loan

While each lender sets their own rules, expect the following:

• Credit Score: 680+ for conventional; 580+ for FHA; no set minimum for VA/USDA (lender discretion).
• Down Payment: 0–20% depending on the loan program.
• Debt-to-Income Ratio (DTI): Usually ≤ 43%.
• Licensed Builder: Must be approved by the lender and have a strong track record.
• Detailed Plans & Budget: Includes permits, blueprints, itemized costs, and timelines.
• Appraisal: Based on projected completed value.

How Payments Work

During Construction:

• Interest-only payments on funds drawn.
• Example: Loan amount $500,000; Month 1 draw $100,000 → interest charged only on $100,000.

After Construction:

• Loan converts to a fixed principal and interest mortgage.
• Term length varies (15, 20, or 30 years).

Steps to Get a One Time Close Construction Loan

• Assess Your Budget — Determine affordability based on down payment, monthly payments, and project cost.
• Choose the Right Loan Program — Conventional, FHA, VA, or USDA.
• Find a Lender — Look for those experienced in construction financing.
• Select a Licensed Builder — Must be lender-approved and insured.
• Get Preapproved — Provide financial and project documentation.
• Finalize Plans — Submit blueprints, permits, and budgets.
• Close the Loan — Pay closing costs once and start construction.
• Monitor Construction — Approve draws and ensure inspections.
• Move into Permanent Mortgage — Automatic conversion after final inspection.

Tips for Success

• Work with Experienced Professionals: Choose a lender and builder familiar with one time close loans.
• Budget for Contingencies: Keep 5–10% extra for unexpected costs.
• Lock Your Rate Early: Protect against potential interest rate increases.
• Understand the Draw Schedule: Ensure it fits your builder’s needs.
• Stay Engaged: Monitor progress to avoid delays.

Frequently Asked Questions

One Time Close Construction Loan Checklist

• Check credit score and eligibility.
• Save for down payment and closing costs.
• Choose a lender offering one time close loans.
• Hire a licensed, lender-approved builder.
• Prepare detailed building plans and permits.

Final Thoughts

A construction loans one time close program can simplify your home-building journey by combining your construction financing and permanent mortgage into one streamlined loan. You’ll save time, reduce paperwork, and avoid paying two sets of closing costs — all while knowing your mortgage terms from the start.

The key to success is preparation: choose the right loan program, work with experienced professionals, and ensure your plans, budget, and builder are lender-approved. With the right setup, you can move from blueprint to move-in day with confidence.