Who Can Qualify for a One-Time Close Construction Loan?

One-time close construction loans are the perfect option for borrowers who want a seamless build-to-buy transition.

Instead of applying for a construction loan, building your home then applying for a traditional mortgage, borrowers who use a one-time close loan qualify and close once.

What's in this article?

How do one-time close construction loans work?
Is it difficult to get a one-time close construction loan?
How do I qualify for a one-time close construction loan?
Work with Compass Mortgage to fund your construction project

Not only does this simplify an already-complex process, but it also helps borrowers save a significant amount of cash.

Let’s dig into how one-time close construction loans work and how you can qualify.

How do one-time close construction loans work?

Construction loans are a short-term lending option that supplies funding for the following:

  • Land purchase
  • Construction materials
  • Labor
  • Plans, permits and fees

Once the construction is complete, borrowers must pay back the loan in full or apply for a permanent source of financing.

While a construction-only loan gets the job done, it takes extra time and money to refinance to a traditional mortgage if a borrower intends to live in the home they built.

To simplify the process, borrowers can apply for a construction-to-permanent loan or a one-time close construction loan.

A one-time close construction loan combines a construction loan and a permanent loan, which means the borrower only has to go through one transaction and a single closing.

Borrowers also can lock in their interest rate, so they know what to expect once the loan converts from construction to traditional. This is especially helpful if the market has changed while the borrower was building their home.

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Is it difficult to get a one-time close construction loan?

Not all lenders offer one-time close construction loans, but Compass Mortgage does.

We are committed to offering our borrowers the best and most affordable loan options to match a range of unique lending scenarios.

With today’s higher mortgage rates and home prices, it has become more difficult for borrowers to afford the homes they love.

A one-time close construction loan allows future homeowners the opportunity to build the home of their dreams with a more streamlined, affordable process.

Here’s how you can prepare for the application and approval process:

  • Boost your credit score: The higher your credit score, the better your options
  • Lower your debt-to-income ratio (DTI): A lower DTI will help you afford more home
  • Save for a down payment: A 20% down payment eliminates private mortgage insurance (PMI), but not all lenders require this amount
  • Find a licensed, qualified builder: Your lender will need to approve the builder
  • Create a detailed construction plan: Your builder or contractor can help you

To get started, reach out to your lender to understand their specific one-time construction loan requirements. 

As with any loan option, each lender has slightly different requirements. The process will be much quicker and smoother if you have an idea of the lender’s unique qualifications.

How do I qualify for a one-time close construction loan?

It’s much simpler to qualify for a one-time close construction loan than it is to qualify for a construction-only loan and a traditional mortgage separately.

The qualifications will vary slightly depending on which loan type you choose as your permanent financing.

For example, Compass Mortgage offers one-time close construction loans combined with conventional loans, FHA loans, VA loans and USDA loans.

Let’s take a look at the requirements:

  • Owner-occupied homes and second homes
  • Fixed-rate, 30-year mortgage
  • As little as 5% down for a conventional loan, 3.5% down for an FHA loan, or 0% down for a VA loan
  • Minimum credit score 680 for conventional, or 660 for FHA, VA and USDA
  • Loan amounts from $175,000 to $726,200
  • Builder must be approved

The greatest benefit to a construction-to-permanent loan is that you only have one closing, so you will only pay closing costs once.

Closing costs can run anywhere from 3-6% of the loan amount, which can add up to thousands of dollars. 

If you only have to pay closing costs once, you can access significant savings which you may choose to put toward your down payment or keep in a savings account.

Work with Compass Mortgage to fund your construction project

The first step in the loan process is pre-approval.

This essential step allows borrowers to get a full picture of their financial situation so they can make the best decisions.

You can apply for pre-approval before you even find the land or property you want to purchase.

Then, you can lock in your approved rate or go back to the drawing board to work on your credit score or DTI until you qualify for your ideal loan.

Get Committed® today

Compass Mortgage takes standard pre-approval further with our unique Get Committed® program.

With standard pre-approvals, you haven’t secured a loan yet. 

Compass Mortgage’s distinctive Get Committed® program provides a fully underwritten loan commitment that allows borrowers to go through most of the steps in the loan process — before you even make an offer on a property.

A loan commitment essentially has the power of a cash offer, showing the seller you’re fully approved financially and that your deal isn’t likely to fall through.

Plus, you can lock in your interest rate before you even find the property you want to purchase. This is essential with today’s volatile rates.

If you’re ready to take the next steps, reach out to our team today. We’ll explain how our one-time close construction loan works, and what you need to supply to us to get approved.

We can’t wait to work with you on your exciting new home-build adventure.

Photo by Vlada Karpovich