If you’re building a home, a one-time close construction loan may be able to help you purchase your lot and finance your build at the same time. (New American Funding),
Building the home of your dreams can be an exciting and rewarding experience, but it can also be an expensive undertaking. In addition to the down payment and mortgage payments, homeowners may also need to secure financing for any construction. Homeowners looking to streamline this process may opt for a One-Time Close construction loan, which consolidates the short-term construction loan and the permanent home mortgage into a single loan.
Wondering if a One-Time Close construction loan can help you build the home of your dreams? Read on to learn all about this mortgage option and how New American Funding can help you apply for one.
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How Does A One-Time Close Construction Loan Work?
A construction loan is a short-term loan (usually six to nine months) used to cover the cost of land, building materials, permits and contractor labor. Unlike standard home mortgages, in which the lender will pay funds in a lump sum for the buyer to pay back over time, construction loans are typically distributed in “draws” over the course of the project. Construction loans tend to be interest-only, with the remaining amount rolled into a separate permanent mortgage after work is complete.
The downside of this structure is that buyers must secure two separate loans and pay two separate closing costs. That’s where the One-Time Close construction loan comes in.
A One-Time Close construction loan — sometimes referred to as a Single Close construction loan or construction-to-permanent loan — allows you to finance both the construction and the long-term mortgage in one loan. Once construction on your new home is completed, the loan will convert into a 15-year or 30-year Fixed-Rate or Adjustable-Rate mortgage. If you’re unsure which option will best meet your needs, consult with a mortgage lender like New American Funding.
Advantages And Considerations For One-Time Close Construction Loans — The two key advantages of a Single Close construction loan are a streamlined process and lower costs. With only one loan, you only need to submit one application and attend one closing date, putting both time and money back into your hands. Additionally, home buyers are typically able to secure construction financing at a slightly lower rate than builders, saving you money that can go right back into the property.
Keep in mind that a construction-to-permanent loan is in your name, rather than that of the builder. To protect your interests, review your builder’s references and financials, and obtain any necessary information or documentation on subcontractors. You’ll also want to ensure work is completed to the degree and quality necessary before signing off on any disbursements to the builder. An experienced lender such as New American Funding will conduct a background check on your chosen builder and continue to monitor their progress throughout construction.
One-Time Close Construction Loan Funding Options
Before applying for a One-Time Close construction loan, it’s crucial to understand your funding options. Several loan programs offer construction-to-permanent financing, including:
- Conventional loans — Fannie Mae, a backer of Conventional loans, offers a single close construction loan program to buyers with a minimum credit score of 680.
- U.S. Department of Agriculture (USDA) — USDA loans, available in specific rural areas, have a zero percent minimum down payment and the option to finance closing costs.
- Veterans Administration (VA) — Single Close construction loans backed by the VA are available to many active military, veterans and eligible family members. These loans have limited closing costs and zero down payment required.
- Federal Housing Administration (FHA) — A popular option for low-to-moderate-income buyers, FHA One-Time Close construction loans have lower down payment minimums and lower credit score requirements than conventional loans.
Eligibility requirements and the application process will be largely similar to that of applying for a traditional home mortgage. The primary difference is that you’ll be responsible for finding a qualified builder or construction team, as well as working with them to create a contract for your project. From there, seek out a mortgage lender like New American Funding to finance the loan.
New American Funding Can Help You Find — Or Build — Your Dream Home
Whether your dream home requires a few renovations or you’re planning to build it from the ground up, New American Funding offers a variety of programs to help, including:
- NAF Cash* — NAF Cash, an affiliated company of New American Funding, will purchase your dream home upfront with a cash offer, which tends to be stronger in the eyes of sellers and could help you save on the purchase price. Then, you can purchase the home back at the original price (plus a minor convenience fee).
- 5-Year Rate Protection Pledge — With New American Funding’s 5-Year Rate Protection Pledge, you can purchase (or refinance) a house now and refinance anytime within the next five years if interest rates drop. This refinancing offer comes free of any lender or appraisal fees.
- Buydown Loan — A Buydown Loan allows you to pay a reduced payment rate for the first, second and third years of your mortgage — at no additional cost to you. Paying less in the early years of your loan can help free up funds for construction and renovation.
If you have any questions about these programs or how to secure financing to build your dream home, New American Funding can help you explore your options. The company’s trusted Loan Officers can provide individualized advice and insights based on your personal circumstances, and guide you through each step of the buying or financing process.
It’s no wonder that in 2022, New American Funding was recognized as #1 in customer satisfaction among mortgage servicers by the J.D. Power 2022 U.S. Mortgage Servicer Satisfaction Study. The company was able to achieve this prestigious recognition through its dedication to helping every client from every background achieve homeownership.
Ready to build your dream home? Explore your loan options with New American Funding. Contact a Loan Officer to get started today.
*NAF Cash is fulfilled by NAF Cash LLC, an affiliated real estate company of New American Funding that is managed and operated in compliance with applicable legal and regulatory requirements. NAF Cash LLC does not originate loans or issue loan commitments. Terms and Conditions apply. Not available in all states. MI Real Estate Broker #6502431375. 41050 W 11 Mile Rd, Suite 220, Novi, MI, 48375. Phone 844-344-0531.
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