Congratulations! You are looking at getting a construction loan for your new build or renovation, which means you’ve reached the point where your dream home can now become your new reality! While researching possible funding solutions, you’ve likely seen construction loan packages which say they are either a “one time close” loan or a two close loan and wondered what the difference between the two is and which option is better. That’s what we will answer in this article!
What is a One Time close loan?
The purpose of a construction loan is to provide funding to purchase land and then either build a new home or renovate a current structure on that land. Usually, the construction loan is only intended to fund the initial construction or renovation; once that portion is completed, another loan would then be needed to facilitate the permanent mortgage. This process requires two separate loans to be processed with two separate approvals and two separate closings. The downside to this is that you have to re-qualify for the loan and pay two sets of closing costs.
What our one time construction loans allow is for only one loan to be applied for and approved with only one closing. Then, once construction or renovation is complete, that same loan is automatically converted to a permanent mortgage without any addition approvals required. There is a huge benefit to the consumer because the loan process is simpler and you do not have to pay two sets of closing costs.
Benefits of a One Time Close Construction Loan
There are some excellent benefits to having a construction loan you only close on once. Some of those benefits include:
- Only One Application: If you’ve ever applied for a loan of any kind, the process can seem as though it will never end. This is especially true when applying for a construction loan. From submitting financial paperwork to waiting for appraisals, the process is daunting. With a one time close construction loan, you only have to go through that process once, and we help you at each step.
- One set of closing costs: With any mortgage loan, closing costs must be paid. Can you imagine having to pay closing costs multiple times for the same residence? With our single-close loans, you only pay the closing cost once.
- One monthly payment: With a separate loan for your mortgage and construction loans, you could end up paying multiple monthly payments for the same residence. When we automatically convert your construction loan to a permanent mortgage, you still only have one monthly payment.
- Loan Security: When you have multiple closings, that means you must be approved for each loan. If you were to lose your job after the construction loan was approved but before the mortgage loan was approved, you could potentially lose your funding and, in turn, your house. With our one time close loans, there is only one approval. Following that initial approval, you don’t have to worry about potentially not qualifying for your final loan.
- Fixed Interest Rates: Many mortgage loans have a variable interest rate. These can often catch you by surprise as they adjust with the market, causing your monthly payment to increase drastically with little to no warning. Our conventional one time construction loans have a fixed interest rate, meaning you can budget and plan what your monthly payment will be for the duration of the loan without any surprises.
- Single Appraisal Valuation: When applying for a home loan, the appraisal valuation is often the longest and most difficult part, with many potential buyers losing a home due to a lower than expected valuation. With our one time close loan, there is only the initial valuation prior to the closing; though the project will be inspected periodically throughout the build, those inspections are simply to ensure the project has reached a certain point before a draw is approved, not to appraise the valuation of the home.
- You choose your build: With a traditional mortgage loan, you can only choose a conventional construction. With our construction loans, you have the complete flexibility to chose how you build. Whether you want a modular, manufactured, or stick-built home, you have the freedom to build your dream home how you want it.
Benefits of Multiple Loans
While going through two or more closings does pose some major risks and down falls, it does have some benefits as well.
- Lower Rates: Depending on the lender, some one time close construction loans can have slightly higher rates than a regular mortgage loan. Having multiple loans would allow you to shop around for the best rates.
- Flexibility: One time construction loans are a prepackaged plan, if you will. If you were to keep your permanent mortgage and construction loans separated, you could then shop for your mortgage loan from any lender you wanted, even if that lender didn’t handle construction loans.
Is a one time construction loan better than multiple loans?
As you can see, the benefits of a one time construction loan far out way those of getting multiple loans. The traditional process of funding your construction or renovation produces an incredible amount of worry and stress for you. Because you have to go through at least two loan processes, the possibility of life circumstances changing, and in turn affecting the second loan’s approval, is always at the back of your mind.
Additionally, some lenders require a third loan, known as a “take-out” loan, to first prove you are able to pay for the construction project, this just means more paperwork, more fees, and additional risks of complications jeopardizing your dreams. This process causes many potential home builders to forsake the thought of building their dream home altogether.
Don’t let that happen to you. We are here for you throughout the entire process, ready and willing to walk you through each step to making your dream home your reality.
We handle the hard stuff so you don’t have to
Don’t let the stress and fear over funding your build or renovation keep you from achieving your dream home. When you let us fund your project, we handle most of the work behind the scenes and manage the flow of information with your builder. We will explain each step of the process and ensure you are fully aware of what is expected of you before moving on.
If you have any further questions or are ready to start the process on your new home, reach out to us now; our team is standing by to help in any way we can!