One-Time Close Construction Loan Requirements: What You Need to Qualify

What does it take to qualify for a One-Time Close construction loan?

Quick answer: You generally need to meet the financial requirements of the underlying mortgage program, and your proposed construction project must meet the lender’s requirements. That means your income, debts, credit, assets, land, builder, plans, construction budget, and as-completed appraisal can all play a role.

Unlike financing an existing house, a construction lender isn’t evaluating only you. It’s evaluating you and a home that hasn’t been built yet.

Here’s what you should know about One-Time Close construction loan requirements before you purchase land, hire a builder, or finalize your plans.

Are you ready to discuss construction financing? Call GO Mortgage at (800) 444-7283 or get started online.

What is a One-Time Close construction loan?

A One-Time Close construction loan combines construction financing and your permanent mortgage into one transaction.

It’s also commonly called a:

• Single-close construction loan
• Construction-to-permanent loan
• Construction-permanent loan

Instead of getting temporary construction financing and applying for a new permanent mortgage when construction is finished, both phases are established through one closing before construction begins.

Construction funds are then released through scheduled draws as eligible work progresses.

After the home is completed and the applicable requirements are satisfied, the financing transitions to its permanent phase in accordance with the loan terms.

What are the basic requirements for a One-Time Close construction loan?

Think about qualification in two categories.

Borrower requirements

The lender evaluates whether you can qualify for the mortgage.

That can include your:

• Credit history
• Income and employment
• Existing debts
• Assets and available funds
• Occupancy and other program requirements

Construction project requirements

The lender also evaluates whether the proposed home and construction process qualify.

That can include your:

• Building lot
• Builder
• Plans and specifications
• Construction contract
• Detailed budget
• Appraisal
• Construction timeline

You generally need both sides of the equation to work.

Excellent borrower qualifications won’t necessarily solve a project that doesn’t meet construction requirements. Likewise, a well-planned project doesn’t replace the need to qualify financially.

What credit score do you need for a One-Time Close construction loan?

There isn’t one universal minimum credit score for every One-Time Close construction loan.

Credit requirements depend on the underlying mortgage program, lender guidelines, and your overall financial profile.

That’s important because “One-Time Close” describes how construction and permanent financing are structured. It isn’t a single standardized mortgage program with a single credit score requirement.

Rather than focusing only on a specific score, lenders can evaluate your broader credit history, including factors such as existing debts and payment history.

If you’re concerned about your credit, talk with a lender before committing money to land, plans, or a builder.

How does your income affect construction loan qualification?

Your lender needs to determine whether your qualifying income supports the proposed permanent mortgage and your other financial obligations.

Documentation requirements vary depending on your employment and income type.

For example, a lender may request documents such as:

• Pay statements
• W-2 forms
• Tax returns when applicable
• Bank or asset statements
• Other income documentation

Self-employed borrowers may have different documentation requirements.

The important point is that the lender needs documented qualifying income, not simply an estimate of what you earn.

What debt-to-income ratio do you need?

Your debt-to-income ratio (DTI) compares your qualifying monthly debt obligations to your qualifying gross monthly income.

Your proposed housing expense is considered along with other qualifying debts.

There isn’t one DTI number that guarantees approval for every One-Time Close loan. Requirements can depend on the mortgage program, underwriting method, credit profile, reserves, and other factors.

Avoid treating a DTI calculator as an approval decision.

A lender needs to review the complete application.

How much down payment do you need?

There isn’t a single down payment requirement for all One-Time Close construction loans.

The required borrower contribution can depend on:

• Mortgage program
• Loan-to-value ratio
• Property type
• Land ownership
• As-completed appraisal
• Borrower qualifications
• Eligible source of funds

For applicable conventional single-close purchase transactions, Fannie Mae currently requires the borrower to make the minimum contribution from their own funds unless certain exceptions apply. Eligible gifts, grants, or employer assistance may be permitted in qualifying circumstances.

VA construction loan requirements

VA financing works differently for eligible borrowers. VA-backed purchase financing may provide a no-down-payment option when program requirements are satisfied, and the sales price doesn’t exceed the appraised value.

No down payment does not mean no cash is needed. Closing costs and other expenses may still apply. For VA construction/permanent loans, for example, VA currently states that only the VA funding fee may be financed into the loan amount; other applicable fees and charges must be handled at closing.

Your lender can calculate the funds needed for your specific transaction.

Does owning land help you qualify?

It can affect how the transaction is structured. You don’t necessarily need to own your lot to pursue One-Time Close financing.

Depending on the program and transaction, you may be able to purchase eligible land and finance construction in a single transaction.

Ensure you tell your lender if you already own the land you’re trying to build on.

For applicable Fannie Mae single-close transactions, the financing treatment differs depending on whether you’re purchasing the lot as part of the transaction or already hold legal title before the first construction advance.

Existing land equity may therefore be relevant to your financing structure.

But don’t assume your land’s estimated value translates dollar-for-dollar into a down payment. The appraisal, existing liens, loan program, and lender requirements still matter.

What property requirements apply?

A construction loan finances a property that will become collateral for the mortgage.

The lender therefore needs to evaluate both the land and the proposed improvements.

Requirements vary by mortgage program and lender, but the property generally needs to satisfy applicable standards for the loan being used.

Before purchasing a lot, investigate issues that could affect the project, including:

• Zoning
• Legal access
• Utilities
• Permits
• Site development
• Well or septic needs
• Property restrictions

Don’t assume a parcel is suitable for your construction financing simply because it’s listed as a residential lot.

Does your builder have to qualify?

Your builder is an important part of the One-Time Close process.

The exact approval process varies by lender and mortgage program, but the lender may need information about the builder and construction project before approving the transaction.

That can include applicable licensing, insurance, experience, business information, construction documents, and other lender-required information.

This is why you should talk with your lender before signing a binding builder contract or paying substantial nonrefundable expenses.

A builder you like still needs to fit the requirements of your financing.

What construction plans do you need?

The lender can’t adequately evaluate a project based on a rough description of your dream home.

You’ll generally need detailed plans and specifications showing what will actually be built.

Depending on the project, documentation may address:

• Home size and layout
• Bedrooms and bathrooms
• Exterior elevations
• Building materials
• Interior finishes
• Site improvements
• Other construction specifications

These documents are also important for the appraisal.

The appraiser needs enough information to understand the proposed finished home and develop an opinion of its as-completed value.

Why is a detailed construction budget required?

Your lender needs to understand where the construction money is going.

A detailed budget can identify costs associated with labor, materials, site work, contractor expenses, and other eligible construction items.

The budget also helps establish the project’s draw schedule.

A broad estimate such as “the house should cost around $500,000” isn’t enough for construction underwriting.

The lender needs a reasonable picture of the project’s total cost and how those funds will be used throughout construction.

What is the as-completed appraisal requirement?

Because the home hasn’t been built yet, the appraisal process differs from that for an existing-home purchase.

The appraiser reviews the proposed construction and develops an opinion of the property’s value when completed, in accordance with the plans and specifications.

This is called the as-completed appraised value.

That value can directly affect financing.

For applicable Fannie Mae single-close purchase transactions, the loan-to-value calculation uses the lesser of:

1. The purchase price, including construction cost and lot price
2. The property’s as-completed appraised value

So spending $700,000 on a project doesn’t automatically mean the property supports financing based on a $700,000 value.

What assets and reserves might you need?

Your lender may need to verify that you have enough eligible funds to complete the transaction.

Depending on the loan program and your situation, that can include funds for:

• Required borrower contribution
• Closing costs
• Prepaid expenses
• Required reserves
• Construction expenses not included in the loan

The amount and acceptable sources vary.

Avoid moving large amounts of money, taking out new debt, or borrowing funds for the transaction without first discussing it with your lender.

Those changes can affect underwriting or require additional documentation.

What documents should you prepare?

One-Time Close financing combines mortgage underwriting with construction-project review, so expect more documentation than you might encounter with a straightforward existing-home purchase.

A useful starting checklist includes:

1. Financial documents: Income, employment, asset, credit, and liability information requested by the lender
2. Land documents: Purchase contract or documentation showing current ownership and existing liens
3. Builder documents: Information required by the lender or mortgage program
4. Construction documents: Plans, specifications, contract, detailed budget, and applicable project information
5. Property documents: Appraisal and other property-related documentation required for the transaction

Your lender can give you a project-specific checklist.

Do you qualify once or twice with a One-Time Close loan?

The major advantage of a One-Time Close structure is that construction and permanent financing are established through the same closing.

But don’t interpret that as a promise that your financial circumstances can change without consequence during construction.

For applicable conventional single-close financing, Fannie Mae currently requires lenders to underwrite loans based on the permanent financing terms. Its rules also identify circumstances in which updated credit documents and borrower requalification may be required before conversion to permanent financing.

For example, requalification may be triggered under applicable rules if property value declines or certain loan terms or credit documents change.

So after closing, continue treating your finances carefully. Before taking on new debt, changing employment, or making another major financial move, talk with your lender about how it could affect your construction financing.

Want to know which requirements apply to your project? Get started with GO Mortgage.

What One-Time Close loan programs may be available?

One-Time Close construction financing may be structured using different underlying mortgage programs for qualified borrowers and eligible projects.

GO Mortgage’s options may include conventional, FHA, and VA One-Time Close financing, subject to availability, program rules, and lender requirements.

Conventional

Conventional single-close construction-to-permanent financing has its own borrower, loan-to-value, appraisal, property, and documentation requirements.

Fannie Mae’s current Selling Guide expressly provides for eligible single-closing construction-to-permanent transactions.

FHA

FHA construction financing can provide another option for eligible borrowers and properties.

Applicable FHA borrower, property, appraisal, mortgage insurance, loan-limit, and construction requirements apply.

VA

Eligible Veterans, service members, and certain surviving spouses may be eligible for VA-backed One-Time Close construction financing.

VA specifically permits one-time construction loans used to close both construction and permanent financing.

Eligible borrowers need to satisfy VA and lender requirements, including applicable Certificate of Eligibility, occupancy, income, credit, appraisal, and construction requirements.

Can first-time buyers qualify for a One-Time Close loan?

Potentially, yes.

You don’t need to have previously owned a home simply because you’re applying for construction financing.

First-time homebuyers still need to qualify under the applicable mortgage program, and their proposed construction project must meet the lender’s requirements.

What could prevent you from qualifying?

A One-Time Close loan can encounter problems on either the borrower side or project side.

Potential issues can include inadequate qualifying income, excessive debt, credit concerns, insufficient eligible funds, a low appraisal, an ineligible property, an unacceptable construction plan, unresolved land issues, or a builder or project that fails to meet applicable requirements.

Construction cost can also create problems

Your loan amount doesn’t automatically increase simply because the project becomes more expensive.

If your budget is already close to your financing limit, unexpected expenses can become especially important.

How can you improve your chances of a smoother construction loan process?

You can’t guarantee approval, but you can avoid some common problems.

Start with financing

Talk with your lender before designing a home around a specific price.

Establish a realistic financing range first.

Avoid new debt

Don’t finance a vehicle, open large new credit accounts, or make other significant financial changes without discussing the potential impact with your lender.

Investigate the land

Confirm that the lot works for the home you intend to build.

Choose your builder carefully

Ask about the lender’s requirements before entering into a binding agreement.

Keep your plans and budget aligned

Your construction contract, plans, specifications, budget, and appraisal should describe the same project.

That coordination can help prevent surprises during underwriting.

FAQ: One-Time Close construction loan requirements

Find out whether you meet One-Time Close construction loan requirements

Qualifying for a One-Time Close construction loan involves more than just meeting a credit score threshold.

The lender is evaluating two things at once:

1. Can you qualify for the permanent mortgage?
2. Does the proposed construction project support the financing?

That means your income, debts, credit, assets, land, builder, plans, budget, and appraisal all need to come together.

The best time to identify a potential problem is before you purchase a difficult building lot, sign a binding construction contract, or design a home outside your financing range.

Start with the financing. Then build the project around numbers and requirements you understand.

Ready to see what your project may qualify for? Get started with GO Mortgage to discuss your One-Time Close construction loan options and the requirements that may apply to your build.

This article is for general informational purposes only and isn’t a commitment to lend or a guarantee of approval, eligibility, loan amount, credit requirements, down payment, or financing. Loan programs, availability, borrower qualifications, property requirements, builder requirements, appraisal standards, construction requirements, and underwriting guidelines vary.