Quick answer
The most common mistakes associated with one-time close construction loans include using an unapproved builder, underestimating costs, overlooking appraisal requirements, and failing to understand the draw schedule or permanent loan terms. Planning ahead and working with an experienced lender can prevent costly delays and setbacks.
What is a one-time close construction loan?
A one-time close construction loan combines the financing for land purchase (if needed), home construction, and the final mortgage into a single loan. Instead of going through multiple closings and reapplying after construction, you lock in one set of terms from the start.
These loans can simplify the building process, but only when planned carefully. Borrowers often make preventable mistakes that can lead to delays, additional costs, or even the denial of funding.
Knowing what to avoid can save you time, money, and stress.
Before you start your build, talk with GO Mortgage’s construction lending experts.
Mistake #1: Choosing a builder who isn’t approved
One of the most common and costly mistakes is selecting a builder who hasn’t been vetted and approved by your lender. Most one-time close loan programs, especially those offered by the VA, FHA, and USDA, require you to use a licensed, insured, and approved contractor.
Why it matters:
- Lenders won’t release funds to unapproved builders
- You may have to reapply or start over with another contractor
- Unqualified builders may cause construction delays or fail inspections
Avoid it by: Getting a list of lender-approved builders early and verifying credentials before signing a contract.
Mistake #2: Underestimating total construction costs
Many borrowers focus on the base cost of their home, but forget to factor in:
- Site prep (clearing, grading, utilities)
- Permits and inspection fees
- Landscaping
- Upgrade options
- Contingency reserves (for unexpected costs)
If the loan amount doesn’t cover the true cost, you could run out of funds mid-project.
Avoid it by: Requesting a detailed construction budget and builder contract. Ask your lender to include a contingency reserve in the draw schedule.
Mistake #3: Assuming closing costs are automatically included
Some borrowers are surprised to learn they need to pay closing costs upfront—even though the loan covers construction and permanent financing. While many lenders allow you to roll closing costs into the loan, it’s not guaranteed.
Avoid it by: Asking your lender whether closing costs can be financed and reviewing your Loan Estimate for exact figures before closing.
Mistake #4: Ignoring the appraisal process
With one-time close loans, the appraisal happens before construction begins. The appraiser reviews your building plans, specifications, and comparable sales (comps) to determine the finished home’s value.
If the appraised value is lower than expected, you may face:
- Reduced loan amount
- Out-of-pocket funding gaps
- The need to downsize your build or increase your down payment
Avoid it by: Working with a builder who knows how to prepare professional plans and specs. Review comparable home sales in the area with your lender before submitting.
Mistake #5: Not understanding the draw schedule
Construction funds are not given in a lump sum. Instead, lenders release money in phases as work is completed and inspected. This is called a draw schedule.
If your builder is unfamiliar with the process or if inspections are delayed, this can stall the project.
Avoid it by: Review the draw schedule with your builder and lender before starting. Understand who is responsible for handling inspections, paperwork, and approvals for each phase.
Mistake #6: Overlooking the permanent loan terms
After construction, the loan automatically converts into a permanent mortgage. But many borrowers fail to pay attention to the final terms during the initial closing.
You may be locked into:
- A higher interest rate than the market average
- Mortgage insurance (e.g., FHA MIP)
- Terms that don’t match your long-term goals
Avoid it by: Confirming your permanent rate, loan term (15 vs 30 years), and mortgage insurance costs before signing. If rates drop later, you may want to consider refinancing.
Mistake #7: Skipping prequalification before designing your home
Some borrowers begin designing their custom home before verifying what they can actually afford. Without prequalification, you risk creating a plan that exceeds your loan limits or results in denied financing later.
Avoid it by: Starting with a lender consultation. Prequalification helps you understand your budget, eligible loan programs, and whether your land and build plans align with financing guidelines.
FAQ: Mistakes to avoid with one-time close loans
Q: What happens if my builder isn’t approved by the lender?
A: Your loan may be delayed or denied. Most lenders require contractors to be approved, licensed, and insured. You’ll either need to get your builder approved or find one who’s already qualified.
Q: Can I change my plans or budget after the loan is approved?
A: Major changes after closing may require a loan modification or trigger re-approval. Small adjustments may be allowed, but any changes that impact cost or appraised value require lender review.
Q: What if my home appraises for less than the build cost?
A: You’ll need to make up the difference out of pocket, reduce the construction budget, or dispute the appraisal with your lender. Lenders base loan amounts on the lower of appraised value or total cost.
Q: How do I avoid delays during the construction phase?
A: Work with a builder familiar with lender draw schedules and inspections. Maintain open communication among your contractor, lender, and title company throughout the construction process.
Q: Can I lock in my permanent interest rate before construction starts?
A: Yes. One-time close loans enable you to lock in the final mortgage rate before construction begins. Confirm the lock period and any fees with your lender to avoid surprises later.
Plan smarter with GO Mortgage
Avoiding costly mistakes starts with working alongside a trusted lender. GoMortgage specializes in helping homebuyers navigate the unique steps of one-time close construction loans.
We’ll help you:
- Verify builder approval
- Estimate total construction costs accurately
- Navigate appraisals and closing disclosures
- Structure a clear draw schedule
- Review your permanent loan terms before closing
Whether you’re building a barndominium, modular home, or custom residence, we’ll guide you every step of the way.
Get started today with GO Mortgage to build with confidence.