Quick Answer
A conventional loan is best for financing the purchase of an existing home or a newly built home from a developer. A one-time close construction loan is ideal for buyers who want to build a custom home and prefer a single mortgage transaction. The right choice depends on whether you’re buying or building, your timeline, and your cash reserves.
Understanding the difference between conventional loans and one-time close loans
A conventional loan is a traditional mortgage used to purchase an existing home or a new home that has already been built. It typically requires standard income, credit, and down payment documentation and is backed by Fannie Mae or Freddie Mac.
A one-time close construction loan, on the other hand, combines construction financing and permanent mortgage financing into a single transaction.
This is used when building a custom or semi-custom home and includes a draw schedule, inspections, and a built-in conversion to a long-term mortgage upon completion.
Choosing the right loan means understanding how each works, when it applies, and what requirements are involved.
When a conventional loan is the better option
Conventional financing often makes the most sense when you’re buying a home that is:
- Already built and move-in ready
- Part of a new development or subdivision
- Being purchased directly from a builder offering prearranged financing
Advantages of conventional loans:
- Faster closing: Often closes within 30 days, as no construction is involved.
- Simpler approval: No builder vetting or construction plans required.
- Wider lender availability: Most banks and mortgage companies offer conventional options.
- Lower complexity: No draw schedule or construction inspections.
- Standard appraisals: Based on the current market value of an existing home.
Common use cases:
- Buying an existing single-family home
- Purchasing a move-in-ready new construction
- Refinancing an existing home
A conventional loan is especially efficient for buyers who want to avoid the extended timelines and oversight involved with construction loans.
When one-time close construction financing makes more sense
A one-time close construction loan is ideal if you’re:
- Building a custom home on your own lot
- Working with an independent contractor or architect
- Purchasing land and building simultaneously
- Seeking to lock in your permanent mortgage rate before construction starts
Advantages of one-time close loans:
- Single closing: Construction and permanent financing are completed in one transaction
- Predictable terms: Rate lock at the beginning of the loan applies through completion
- Interest-only during construction: Lower payments while the home is being built
- No need to requalify: Once the loan is closed, no additional credit checks are needed
Typical process:
- Builder is vetted and approved by the lender
- Construction plans and permits are submitted
- Appraisal is done based on the future home value
- Loan closes and disburses in draws as construction progresses
- Once complete, the loan converts to a long-term mortgage automatically
This type of loan is often the only way to finance a true custom home from the ground up, especially when no prebuilt options are available.
Side-by-side comparison: Conventional loan vs. one-time close loan
| Feature | Conventional Loan | One-Time Close Construction Loan |
| Property Type | Existing or completed home | Home to be built from scratch |
| Loan Closing | Once at purchase | Once before construction begins |
| Draw Schedule | Not applicable | Yes, in multiple stages |
| Builder Approval Required | No | Yes |
| Appraisal Type | Based on existing home value | Based on “as-completed” future value |
| Time to Close | 30–45 days | 45–75 days |
| Construction Oversight | None | Inspections required before each draw |
| Interest Rate Lock | At time of offer | At closing, applies to both phases |
| Mortgage Insurance (PMI) | Required under 20% down payment | Also required, depending on loan program |
| Common Use | Existing homes, new developments | Custom home builds |
This chart illustrates how each loan suits different buyer scenarios and construction goals.
Credit score and down payment differences
Both loan types have minimum credit and down payment requirements, although these can vary depending on the loan type and lender.
| Loan Type | Minimum Credit Score | Typical Down Payment |
| Conventional Loan | 620+ | 3–20% |
| One-Time Close (Conventional) | 680+ | 5–20% |
| FHA One-Time Close | 620+ | 3.5% |
| VA One-Time Close | No set minimum | 0% (for eligible veterans) |
Buyers with stronger credit profiles and more available cash may qualify more easily for conventional or OTC options, depending on their goals.
What to consider when choosing between the two
To decide between a conventional loan and a one-time close loan, consider these key factors:
- Are you buying or building?
- Buy = Conventional
- Build = One-time close
- Do you want a move-in-ready home or a custom build?
- Move-in-ready = Conventional
- Custom = One-time close
- Do you already own the land?
- Yes = One-time close may be ideal
- No = Depends on whether you’re building or buying
- How much time do you have before move-in?
- Less than 2 months = Conventional
- Willing to wait 6–12 months = One-time close
- Can your builder meet lender requirements?
- If not, conventional may be simpler
- If yes, one-time close works well
FAQ: Conventional loan vs. one-time close loan
Q: What is the main difference between a conventional loan and a one-time close loan?
A: A conventional loan is used to buy an existing home, while a one-time close loan finances both the construction and permanent mortgage in one transaction.
Q: Which loan has lower closing costs?
A: A one-time close loan typically has lower overall costs than doing a separate construction loan plus mortgage, but conventional loans may cost less upfront.
Q: Can I use a conventional loan to build a house?
A: No. Conventional loans are generally for purchasing completed homes. You need a construction loan—such as a one-time close—for a new build.
Q: Is it easier to qualify for a conventional loan?
A: Yes. Conventional loans involve fewer moving parts and typically close faster. One-time close loans have more complex requirements due to the need for construction oversight.
Q: What are the risks of a one-time close loan?
A: Construction delays, builder issues, or budget overruns could affect draw schedules or timelines. However, once closed, your interest rate and terms are locked in.
Find the right loan for your situation with GO Mortgage
Choosing between a conventional loan and a one-time close construction loan depends on whether you’re buying an existing home or building a new one. If you want simplicity, speed, and fewer moving parts, a conventional mortgage may be the best fit for you.
But if you’re ready to design and build your dream home, a one-time close loan offers the flexibility and efficiency you need. GO Mortgage offers both options and can guide you through the decision based on your goals.
Start your application with GO Mortgage here to begin your home financing journey with confidence.