One Time Close 

Key Phases of the One-Time Close Construction Loan

1. Planning and Design Phase:
   • Architectural Plans: Begin with detailed architectural plans that include blueprints, specifications, and a comprehensive breakdown of the design elements. These plans are crucial for both the loan application and the construction process.
   • Budget and Timeline: Prepare a thorough budget and timeline that outlines every aspect of the construction process, from initial site preparation to final inspections. Include contingencies for unexpected expenses or delays.
2. Loan Application and Approval:
   • Single Application Process: Submit a single application that covers both the construction and permanent mortgage phases. This application will require detailed documentation, including your financial information, credit history, and the construction plans.
   • Approval Criteria: Lenders will review your application based on several factors, including your credit score, debt-to-income ratio, and the feasibility of your construction plans. They may also require a licensed and experienced builder to be part of the project.
3. Pre-Construction:
   • Permits and Approvals: Obtain all necessary permits and approvals from local authorities before construction can begin. This may include zoning permits, building permits, and environmental assessments.
   • Site Preparation: This phase involves clearing the land, grading, and laying the foundation. Proper site preparation is crucial to ensure the stability and longevity of the structure.
4. Construction Phase:
   • Draw Schedule: Loan funds are typically disbursed in phases, known as "draws," based on the completion of specific milestones. These milestones might include foundation completion, framing, plumbing, electrical work, and roofing.
   • Inspections: At each draw phase, the lender may require inspections to ensure that the work is progressing according to the plans and that the quality meets the required standards. These inspections help to mitigate risks and ensure that the project stays on track.
   • Interest-Only Payments: During the construction phase, you make interest-only payments on the disbursed amount. This helps manage cash flow, as the full loan amount is not yet due.
5. Completion and Conversion:
   • Final Inspection and Approval: Once construction is complete, a final inspection is conducted to ensure that the home meets all building codes and standards. Any remaining funds from the loan are disbursed upon approval.
   • Automatic Conversion: The construction loan automatically converts into a permanent mortgage, eliminating the need for a second closing and saving you time and additional closing costs.
   • Permanent Mortgage Terms: The terms of the permanent mortgage, including the interest rate and repayment schedule, are determined at the time of the initial loan approval.

Key Benefits of the One-Time Close Construction Loan

1. Streamlined Process:
   • By combining the construction loan and permanent mortgage into a single loan, the entire process is streamlined. This reduces the administrative burden and simplifies the overall experience for the borrower.
2. Cost Savings:
   • With only one closing, you save on closing costs and associated fees. Additionally, avoiding the need to refinance from a construction loan to a permanent mortgage can result in significant financial savings.
3. Fixed Interest Rate:
   • Many One-Time Close Construction Loans offer a fixed interest rate, providing stability and predictability in your payments throughout the construction phase and into the permanent mortgage.
4. Simplified Payments:
   • Interest-only payments during construction help manage cash flow, making it easier to handle the financial demands of building a new home.

The One-Time Close Construction Loan is an excellent option for those looking for a streamlined, cost-effective, and predictable way to finance their home construction project.

Two Time Close

Key Phases of the Two-Time Close Construction Loan

1. Planning and Design Phase:
   • Architectural Plans: As with the One-Time Close, start with comprehensive architectural plans that include blueprints, specifications, and detailed design elements. These plans are essential for both the construction loan application and the actual building process.
   • Budget and Timeline: Develop a detailed budget and timeline for the construction project, including contingencies for unexpected costs or delays.
2. First Loan: Construction Loan Application and Approval:
   • Separate Application Process: Submit an application specifically for the construction loan. This will require detailed documentation including financial information, credit history, and the construction plans.
   • Approval Criteria: Lenders will assess your credit score, debt-to-income ratio, and the feasibility of your construction plans. They will also require a licensed and experienced builder to be part of the project.
3. Pre-Construction:
   • Permits and Approvals: Obtain all necessary permits and approvals from local authorities before construction begins. This includes zoning permits, building permits, and environmental assessments.
   • Site Preparation: Conduct site preparation, which involves clearing the land, grading, and laying the foundation. Proper site preparation is crucial for the stability and longevity of the structure.
4. Construction Phase:
   • Draw Schedule: Funds from the construction loan are disbursed in phases or "draws" based on the completion of specific milestones such as foundation, framing, plumbing, electrical work, and roofing.
   • Inspections: Lenders will require inspections at each draw phase to ensure that the work is progressing according to the plans and meets quality standards. This helps manage risks and keeps the project on track.
   • Interest-Only Payments: During this phase, you make interest-only payments on the amount disbursed, which helps manage cash flow.
5. Completion of Construction:
   • Final Inspection and Approval: Once construction is completed, a final inspection ensures that the home meets all building codes and standards. Remaining funds from the construction loan are disbursed upon approval.
6. Second Loan: Conversion to Permanent Mortgage:
   • New Application: After construction is complete, you must apply for a separate permanent mortgage to pay off the construction loan. This involves a new round of credit checks, documentation, and approvals.
   • Closing Costs: A second closing is required for the permanent mortgage, which means additional closing costs and associated fees.
   • Permanent Mortgage Terms: The terms of the permanent mortgage, including the interest rate and repayment schedule, are determined at the time of this second loan approval.

Key Benefits of the Two-Time Close Construction Loan

1. Flexibility:
   • The Two-Time Close offers more flexibility in terms of loan terms and conditions, as you can shop around for different permanent mortgage options once construction is complete.
2. Potential for Better Rates:
   • Since the permanent mortgage is applied for after construction, there is an opportunity to lock in a potentially lower interest rate if the market conditions have improved.
3. Separate Processes:
   • The separation of the construction loan and permanent mortgage can provide a clearer structure and understanding of each phase, making it easier to manage specific aspects of the project.

Potential Drawbacks of the Two-Time Close Construction Loan

1. Two Closings:
   • Having two separate closings means you will incur additional closing costs and fees, which can add to the overall expense of the project.
2. Requalification:
   • You will need to requalify for the permanent mortgage after construction is complete, which can be a risk if your financial situation changes or if market conditions are less favorable.
3. Time-Consuming:
   • The process of applying for and closing on two separate loans can be more time-consuming and administratively burdensome.

The Two-Time Close Construction Loan is a good option for those who prefer flexibility and the potential to secure better rates for their permanent mortgage, despite the added costs and complexity of having two separate loan processes.