One-Time Close Construction Loans Versus Two-Close Loans
July 27, 2022
There is a mortgage loan option that lets you build a house from the ground up on land you own or purchase in conjunction with the loan. The One-Time Close loan is the mortgage you want to build a home from the ground up instead of buying someone else’s dream home.
But there are some issues to consider when comparing your loan options; some lenders still offer two-close construction loans that feature two applications, two closing dates, and two different interest rates. The reason these two-close loans may be tempting for some? They may feature lower interest rates than a One-Time Close mortgage. But are those lower rates worth it?
What do you need to know when comparing these options?
Fixed Interest Versus Adjustable Rates
One-Time Close construction loans feature a single interest rate, and that rate is typically offered for a 30-year, fixed-interest mortgage. During a single-close or One-Time Close loan, the interest rate is set before construction and the permanent loan interest rate is also pre-determined.
When a borrower uses a two-close construction loan instead, the loan for the construction phase of the process may typically be offered as an adjustable-rate loan. A fixed interest rate is offered for the second loan, which serves as the mortgage.
Two-close loans are typically riskier for both borrower and lender, as there are no guarantees that the borrower will qualify both times for the two loan process. A borrower who develops credit problems after the construction loan is approved and cannot be approved for the second loan may find themselves in a very difficult position as a result.
Interest Rates May Be Higher In General
Construction loans generally feature higher interest rates than existing purchase loans. For a One-Time Close construction loan, interest rates may be again slightly higher when compared to two-close loans.
But the reduced risk for the borrower may be well worth the extra expense. There are ways to mitigate the extra interest; one way is to divide your monthly payment in half and pay the same mortgage amount, but in two installments each month.
Managing Your Mortgage
Paying this way means you will make an extra mortgage payment each year without having spent any extra money, and that can go a long way toward helping you save money over the full term of the mortgage.
You should discuss any required early payoff procedures with your lender as paying off your One-Time Close construction loan early may require you to follow a prescribed set of steps. For government-backed One-Time Close mortgages, there is no penalty allowed for early payoff. If you are applying for a conventional construction loan be sure to ask the lender about any penalties for paying off the mortgage ahead of schedule.
Want More Information About One-Time Close Loans?
We have done extensive research on the FHA (Federal Housing Administration) and the VA (Department of Veterans Affairs) One-Time Close Construction loan programs. We have spoken directly to licensed lenders that originate these residential loan types in most states and each company has supplied us with the guidelines for their products.
We can connect you with mortgage loan officers who work for lenders that know the product well and have consistently provided quality service. If you are interested in being contacted by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.
OneTimeClose.com provides information and connects consumers to qualified One-Time Close lenders to raise awareness about this loan product and to help consumers receive higher quality service. We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.
Please note that investor guidelines for the FHA and VA One-Time Close Construction Program only allow for single-family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes, or fourplexes). In addition, the following homes/building styles are not allowed under these programs: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.
Contact Us: Send Us Your Request – Spam Safe
Please send your email request to [email protected] which authorizes OneTimeClose.com to share your personal information with one mortgage lender licensed in your area to contact you.
1. Send your first and last name, e-mail address, and contact telephone number.
2. Tell us the city and state of the proposed property.
3. Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good - (640-679), Fair – (620-639) or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.
4. Are you or your spouse (Co-borrower) eligible veterans? If either of you are eligible veterans, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio per VA will allow – there are no maximum loan amounts as per VA guidelines. Most lenders will go up to $1,000,000 and review higher loan amounts on a case-by-case basis. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.
But there are some issues to consider when comparing your loan options; some lenders still offer two-close construction loans that feature two applications, two closing dates, and two different interest rates. The reason these two-close loans may be tempting for some? They may feature lower interest rates than a One-Time Close mortgage. But are those lower rates worth it?
What do you need to know when comparing these options?
Fixed Interest Versus Adjustable Rates
One-Time Close construction loans feature a single interest rate, and that rate is typically offered for a 30-year, fixed-interest mortgage. During a single-close or One-Time Close loan, the interest rate is set before construction and the permanent loan interest rate is also pre-determined.
When a borrower uses a two-close construction loan instead, the loan for the construction phase of the process may typically be offered as an adjustable-rate loan. A fixed interest rate is offered for the second loan, which serves as the mortgage.
Two-close loans are typically riskier for both borrower and lender, as there are no guarantees that the borrower will qualify both times for the two loan process. A borrower who develops credit problems after the construction loan is approved and cannot be approved for the second loan may find themselves in a very difficult position as a result.
Interest Rates May Be Higher In General
Construction loans generally feature higher interest rates than existing purchase loans. For a One-Time Close construction loan, interest rates may be again slightly higher when compared to two-close loans.
But the reduced risk for the borrower may be well worth the extra expense. There are ways to mitigate the extra interest; one way is to divide your monthly payment in half and pay the same mortgage amount, but in two installments each month.
Managing Your Mortgage
Paying this way means you will make an extra mortgage payment each year without having spent any extra money, and that can go a long way toward helping you save money over the full term of the mortgage.
You should discuss any required early payoff procedures with your lender as paying off your One-Time Close construction loan early may require you to follow a prescribed set of steps. For government-backed One-Time Close mortgages, there is no penalty allowed for early payoff. If you are applying for a conventional construction loan be sure to ask the lender about any penalties for paying off the mortgage ahead of schedule.
Want More Information About One-Time Close Loans?
We have done extensive research on the FHA (Federal Housing Administration) and the VA (Department of Veterans Affairs) One-Time Close Construction loan programs. We have spoken directly to licensed lenders that originate these residential loan types in most states and each company has supplied us with the guidelines for their products.
We can connect you with mortgage loan officers who work for lenders that know the product well and have consistently provided quality service. If you are interested in being contacted by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.
OneTimeClose.com provides information and connects consumers to qualified One-Time Close lenders to raise awareness about this loan product and to help consumers receive higher quality service. We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.
Please note that investor guidelines for the FHA and VA One-Time Close Construction Program only allow for single-family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes, or fourplexes). In addition, the following homes/building styles are not allowed under these programs: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.
Contact Us: Send Us Your Request – Spam Safe
Please send your email request to [email protected] which authorizes OneTimeClose.com to share your personal information with one mortgage lender licensed in your area to contact you.
1. Send your first and last name, e-mail address, and contact telephone number.
2. Tell us the city and state of the proposed property.
3. Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good - (640-679), Fair – (620-639) or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.
4. Are you or your spouse (Co-borrower) eligible veterans? If either of you are eligible veterans, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio per VA will allow – there are no maximum loan amounts as per VA guidelines. Most lenders will go up to $1,000,000 and review higher loan amounts on a case-by-case basis. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.
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