Build Your Dream Home With a One Time Close Loan

If you’ve always dreamed of building your perfect custom home, a one time close loan could make that dream a reality. This innovative loan product lets you finance the construction and purchase of a new home with just one loan and one closing. As a homebuyer, this streamlined process saves you time, money, and hassle compared to a traditional construction loan. In this comprehensive guide, we’ll explain everything you need to know about one time close loans so you can decide if it’s the right choice for building your dream home.

What is a One Time Close Loan?

Also known as a single close loan, a one time close loan combines the construction loan and permanent mortgage into one convenient loan product. Instead of needing to close on two separate loans, you only go through the home buying process once. Here’s a quick overview of how it works:

• You get approved for one loan that covers purchasing land, construction costs, and the permanent mortgage.

• There is one closing where you sign paperwork and secure financing for the entire project

• The lender disburses payment installments to the builder during construction.

• Once the home is completed, the loan automatically converts to a traditional permanent mortgage.

No need to requalify or go through another closing. The one time close loan provides a seamless process from start to finish.

Key Benefits of One Time Close Loans

Why should you consider a one time close loan rather than a conventional construction loan? Here are some of the biggest benefits:

Streamlined Process

You only go through the home buying process once, avoiding the time and hassle of applying, closing, and requalifying for two separate loans. This simplified process is especially appealing to first time home buyers.

Cost Savings

Because it’s one loan instead of two, you’ll save money on closing costs and loan fees. You also lock in your interest rate upfront for the permanent financing.

Payment Flexibility

During construction, you only need to pay interest on the money disbursed to the builder so far. Once the home is finished, payments convert to principal and interest.

Build on Your Own Land

If you already own land, you can use it as the downpayment. The loan covers construction costs on top of the land value.

Low Down Payment Options

Programs like FHA and VA loans allow down payments as low as 3.5% or even 0% for veterans.

Customize Your Home

Work directly with a builder to design your ideal home with custom features. The loan funds the project from start to finish.

Am I Eligible for a One Time Close Loan?

While eligibility criteria can vary between lenders, here are some general requirements to qualify for a one time close loan:

• Credit score – Most programs require a minimum credit score in the 620-640 range. Better scores get you lower rates.

• Downpayment – Typically 3.5% to 5% is needed. Veterans can get 0% down VA loans.

• Debt-to-income ratio – Your total monthly debt divided by gross monthly income should be below 50% in most cases.

• Loan amount – Programs have limits based on local real estate values and your eligibility. Loan amounts often range from $200k up to $1 million.

• Property type – The home must be a single family home or condo. Non-traditional homes often don’t qualify.

• Land ownership – You can use land you already own or buy vacant land with the one time close loan.

If you meet the basic requirements, you’re likely a good candidate. Talk to a lender to confirm you qualify.

Choosing the Right Builder

The success of your project depends heavily on the builder you select. Here are some tips for choosing the right construction pro:

• Look for an experienced local builder familiar with custom homes. Ask to see examples of completed projects.

• Verify they are properly licensed, insured, and bonded. This protects you from potential issues down the road.

• Request 3-5 client referrals and call previous customers to ask about their experience.

• Get quotes from multiple builders to evaluate pricing. Make sure bids align with the market.

• Choose someone you trust and can communicate with effectively. You’ll work closely throughout the process.

Take time to carefully vet potential builders, check references, and evaluate bids. This helps set your project up for success.

How Does the One Time Close Process Work?

Now let’s take a detailed look at the step-by-step process from start to finish:

Loan Application and Approval

First, you’ll submit a full loan application to the lender, including your income, employment, credit history, assets, and property information. Once approved, you can move forward.

Sign Closing Documents

At the closing appointment, you’ll provide any remaining documentation, sign all paperwork, and the loan will be funded. This single closing covers the land purchase if needed, construction, and permanent financing.

Finalize House Plans

Work with your chosen builder to make any final tweaks to the home plans and choose interior finishes. Builders can typically customize plans to suit your needs.

Initial Payment and Construction Start

The lender will make the initial construction funds available so work can begin! The builder will order any materials and prepare the building site.

Ongoing Construction

As certain milestones are met, the builder will request additional draws from the loan to pay for materials and labor. An inspector verifies progress before the lender releases funds in increments.

Completion and Move-in

Once construction reaches the finish line, the home will undergo a final compliance inspection. Then it’s time to pick up the keys and move into your beautiful new custom home!

Automatic Conversion to Permanent Loan

Without any extra steps, your loan automatically converts to a traditional 30-year fixed rate mortgage or other permanent financing you qualified for. Just make your normal monthly payments.

While every project is unique, this gives you a general idea of how the one time close loan functions from start to finish.

What are the Costs Associated with One Time Close Loans?

When budgeting for your new home build, be aware of the following costs rolled into your one time close loan:

• Downpayment – Expect to put 3.5-5% down for FHA loans or 0% down for VA loans. Downpayment funds and land value must equal at least 25% of the total project costs.

• Closing costs – You’ll pay closing fees like title charges, attorney fees, recording fees. Costs range from 2-5% of the loan amount.

• Land purchase – If you don’t already own land, buying a lot will add to your upfront costs. Land value gets included in the loan.

• Permits and fees – Factor in any costs for local permits, impact fees, and inspections that apply to your specific project. The builder normally handles these.

• Construction costs – The biggest chunk is paying the builder for materials and labor during the build. Get a detailed bid upfront.

• Interest payments – Your monthly loan payments during construction go towards interest on the funds disbursed to the builder so far.

• Mortgage insurance – FHA loans require both upfront and annual mortgage insurance premiums.

Carefully estimate all these costs when planning your new home budget. Your lender can help you understand the full financial picture.

Know Your Lending Limits

Most one time construction loans are backed by government agencies like FHA or VA. Each program sets limits on how much you can borrow based on local real estate values. These lending limits factor into your approved loan amount and can range widely. For example, the 2022 FHA loan limit in San Francisco is $970,800 while rural Ohio caps out at $420,680. Ask potential lenders how much you may qualify for based on the limits in your county.

From Construction to Move-in

Building a home from the ground up takes time. While construction timelines depend on many variables, you can generally expect:

• 4-6 weeks for permitting, design, and pre-construction

• 6-12 months for actual construction after breaking ground

• 30-45 days for any finishes and final inspections after the builder completes the home

• Closing within 10 days of passing the final inspection

So all said, you’re looking at about 8-18 months from loan closing to moving in. Understanding the full timeline helps set proper expectations. With multiple stakeholders, projects can sometimes encounter delays, so flexibility is key.

Is a One Time Close Loan Right for You?

If you’ve always imagined custom building your own home, a one time close loan provides a streamlined path to achieve your dream. Before pursuing this option, make sure you have:

• A clear vision for your ideal home design and must-have features

• Realistic expectations about the time and coordination involved

• The budget to cover all construction and loan costs

• Strong credit, income, and financial standing to qualify

• The right builder in place after thorough vet