From Construction Phase to Move-In Day
You've closed on your One-Time Close Loan, and it's time for construction on your new home to begin! Your lender will start to disburse "draws" to your contractor over time as the building progresses.
Draw Disbursement
With a Single Close loan, payments are made to the builder on a work-completed basis. Draw requests must be submitted by the builder, along with an itemized report of the progress made on the home. An additional assessment comes from an independent, third-party inspection service that determines the percentage of work completed. Once these reports are received by the lender and the draw amount determined, the disbursements are made to your builder. Some lenders may flow the funds through the closing/escrow agent, while others may disburse directly to the builder.
It Begins With the Start-up Draw
A start-up draw might be paid to your contractor after closing is finalized. This includes the lot payoff amount, less any down payment. Your builder receives the final draw once the project is completed. Lenders may require additional documentation before making this last payment, such as a final appraisal inspection, an endorsement from the Title Company, and proof of the homeowner's insurance policy.
Construction Period
Whether it's FHA or VA, most lenders don't want to see the construction period on your new home exceed 9 months. Every home is different, which means that this timeframe can vary according to the location and type of home. Our lenders have provided average construction periods for the different, one-unit homes financed via One-Time Close loans:
- Site-Built homes -- 280 days average
- Modular homes -- 240 days average
- Manufactured homes -- 200 days average
Amortization and Move-In
During the interim construction period—however long it may be—you are typically not required to make payments on the loan or pay the construction interest. Your builder is responsible for the interest during the construction period, which is an incentive to finish building as quickly as possible. Payments are normally due once the project is complete, all required documents have been provided by your builder to the lender, and the construction portion of the loan converts to the permanent portion of the loan. Your permanent mortgage begins amortization no later than the first of the month following 60 days from the issuance of the certificate of occupancy by the local municipality or final compliance inspection, whichever comes later. No re-qualifying, no increase to your interest rate, and no additional closing costs!
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May 21, 2025A One-Time Close (OTC) residential construction loan is a specialized financing product that combines the financing for a new home's construction phase and the permanent mortgage into a single loan with just one closing. Unlike other methods that require separate loans for building and then for long-term ownership, the OTC loan streamlines the entire process, offering a simplified and often more cost-effective approach to building a custom home than two-close construction loans.
April 29, 2025If you know about regular FHA loans for buying existing homes, the FHA OTC loan for building shares many similarities, but with some key construction-specific twists. FHA One-Time Close mortgages are backed by the Federal Housing Administration. This government insurance protects lenders if a borrower can't pay, allowing lenders to offer loans with easier qualification rules. This makes it a good option for first-time buyers or those who might find conventional loans harder to get.
April 16, 2025There are two popular ways to finance new home construction using a single loan: the FHA One-Time Close (OTC) loan and a similar Conventional single-close loan. What’s a single-close mortgage? Think of it as an "all-in-one" loan for building a house. Instead of getting one loan for the construction phase and then another separate mortgage loan once the home is finished, a single-close loan combines everything into one package. It covers land, materials, labor, permits, and builder fees.
