One Time Close Construction Loans: How The Money Works
August 25, 2022
When you apply for a One-Time Close Construction loan, you’re applying for a single loan that is used to pay for the labor and other costs to build the house, and it also serves as your mortgage.
When the construction is finished and you have moved into your home, the mortgage is fairly easy to understand--make your monthly payments, pay your property taxes, etc. But how does this single-close construction loan work when the builders are hard at work? Who holds the money and how is it disbursed?
The answers to these questions include the information listed below. Keep in mind that your experience may vary depending on the lender, the state you live in, and the contractors you choose.
Escrow Draws
The loan funds needed for the construction of the home are typically placed in escrow. The borrower does NOT get unrestricted access to loan funds, and the money is paid out as the project moves along. It’s paid on an as-needed basis rather than paying a large sum of money to a contractor up front.
The builder submits a request for a “draw” or disbursement of funds and that money is typically wired directly to an account specified by the contractor.
The First Payment or “Initial Disbursement”
Depending on the lender, state law, and other variables, the first payout from escrow, also referred to as an initial disbursement may happen at closing time. That would pay off the land purchase if that is a part of the transaction and a “start-up draw” to the contractor may be authorized.
Special Orders
If special order items related to the construction of the home are needed, those purchases may be paid on a percentage basis depending on the schedule of draws from escrow.
In such cases, the contractor may be required to make a formal request and show invoices to verify the purchase of these items. Lender requirements and other variables may affect how such issues are handled.
Final Draw From Escrow
The final draw paid to the contractor is rendered when the project is finished and there is an appraisal report filed. You may also need an endorsement from a title company and there may be a “final survey” required. Ask your loan officer what is typical in your housing market for this type of home loan transaction.
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 is an eligible veteran, 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 $1,500,000 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.
When the construction is finished and you have moved into your home, the mortgage is fairly easy to understand--make your monthly payments, pay your property taxes, etc. But how does this single-close construction loan work when the builders are hard at work? Who holds the money and how is it disbursed?
The answers to these questions include the information listed below. Keep in mind that your experience may vary depending on the lender, the state you live in, and the contractors you choose.
Escrow Draws
The loan funds needed for the construction of the home are typically placed in escrow. The borrower does NOT get unrestricted access to loan funds, and the money is paid out as the project moves along. It’s paid on an as-needed basis rather than paying a large sum of money to a contractor up front.
The builder submits a request for a “draw” or disbursement of funds and that money is typically wired directly to an account specified by the contractor.
The First Payment or “Initial Disbursement”
Depending on the lender, state law, and other variables, the first payout from escrow, also referred to as an initial disbursement may happen at closing time. That would pay off the land purchase if that is a part of the transaction and a “start-up draw” to the contractor may be authorized.
Special Orders
If special order items related to the construction of the home are needed, those purchases may be paid on a percentage basis depending on the schedule of draws from escrow.
In such cases, the contractor may be required to make a formal request and show invoices to verify the purchase of these items. Lender requirements and other variables may affect how such issues are handled.
Final Draw From Escrow
The final draw paid to the contractor is rendered when the project is finished and there is an appraisal report filed. You may also need an endorsement from a title company and there may be a “final survey” required. Ask your loan officer what is typical in your housing market for this type of home loan transaction.
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 is an eligible veteran, 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 $1,500,000 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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Articles, Updates, and Guidelines
FHA Single Close Construction Loans
July 26, 2024The Federal Housing Administration (FHA) offers qualifying borrowers the option to build a home from the ground up using a Single Close FHA Construction Loan. This program, also known as a One-Time Close construction mortgage, allows borrowers to finance the construction of a new home and convert it into a permanent mortgage with just one closing, streamlining the often complex process of building a house.
The VA Construction Loan Timeline
July 19, 2024VA One-Time Close construction loans help qualifying veterans build homes they will own and occupy once the construction phase is complete. One-time close loans, or construction-to-permanent loans, combine construction and permanent financing into a single closing procedure. VA One-Time Close mortgages have no VA-required down payment or mortgage insurance, making them attractive options for qualifying borrowers.
Construction Loan Choices
July 12, 2024When planning a construction loan, you have many options. For example, do you want to buy land with a loan to build the house? Or do you already own a parcel suitable for the construction project? There are many other choices to make with home loans, but some don’t necessarily apply to construction mortgages.
