If you’re looking to improve your property or build your home, then a single-close construction loan would be an ideal mortgage.
A single-close construction mortgage is exactly as it seems—you close on your loan once.
While these loans aren’t for everyone, there’s a reason why these types of loans are becoming popular.
There are many advantages to a single-close construction mortgage. We’re going to break down what this type of mortgage is, the five benefits of a single-close loan, the process from start to finish, and how to begin the process.
What is a single-close construction loan?
A single-close construction loan can also be referred to as a single-close loan, construction-to-perm loan, CTP loan, and all-in-one loan.
These loans allow for construction costs and financing costs to be rolled into one process.
Multiple loans require buyers to qualify for two loans: one loan for the construction costs and one which will be your long-term mortgage.
Once construction is finished the loan automatically converts over to your mortgage.
Since single-close loans cover the construction fees and home financing, you’ll only have to close on this loan once.
Four types of single-close loans:
- Veterans Affairs (VA) Single Close Construction Loans
- USDA Single Close Loans
- FHA CTP loans
- Fannie Mae Single Close Construction loans
These loans are backed by the federal government, and one of the great benefits is low or even no down payments.
Each of these loans has different requirements, such as build location, but they all meet the standard rules regarding fees and interest rates.Start your construction loan
The 5 pros of a single-close construction loan
First and foremost, single-close loans help you save an enormous amount of time and money. But beyond that, they make the process of building your new home much easier.
1. Save on time
With multiple loans you’ll have to go through the approval and closing process multiple times. This means you’ll have to gather and submit all of the required documentation, like your w-2s, tax returns, and bank statements multiple times. This can quickly get confusing and is quite an undertaking.
With single-close loans, you’ll only have to provide all of the documentation once.
2. Save money
Sometimes closing can cost around $1-2,000 and a traditional mortgage loan will require you to pay fees every time you close. You could easily wind up with around $5,000 in just closing costs when all is said and done.
But the benefit of the single-close is that you’re only going through the closing process once, so you’ll only have one round of closing fees to pay.
You’ll then be able to put that extra money saved towards your monthly mortgage payments or whatever else would fit your needs.
3. Get financing right away
Another thing we love about single-close construction loans is that they work like a line of credit. This means that you can take out finances as costs come up during construction.
In the adverse event that something were to go wrong, or you need additional parts for your home, then rest assured you’ll be taken care of.
4. Fixed interest rates
You want to be sure you’re comfortable with the percentage as this will be what influences your monthly mortgage payments once the building is complete.
Thankfully, with single-close loans, you have a fixed interest rate, which means the amount isn’t going to change based on market trends. This helps you know what to expect and budget accordingly for the duration of your loan term.
5. Only qualify once
These types of loans reduce the risk for you as the borrower. Traditional two-time close loans will require buyers to re-qualify once construction is completed. If you do not qualify again, then you may lose your home.
With single-close loans, you only have to qualify when you apply. Once you receive loan approval, you’re guaranteed no matter what and won’t have to requalify once construction is complete. .
How does a single-close construction loan work?
The process of single-close loans is much simpler than many think.
Before you want to apply you should have your construction plans and specifications ready to go because your future home will still need to be appraised.
This means you should have a builder selected and a contract in place regarding the building plans and finances of the construction.
Selecting a Builder
Selecting the right builder is critical. You not only want to work with someone you trust but someone who has experience in accomplishing what you need.
Anything that goes awry during construction will be the buyer’s responsibility—not the lender or the builder’s.
You also want to make sure the builder has experience with your type of property so that they can properly gauge the materials needed for your home and provide an accurate cost to build.
If not, you may end up taking out more money than you had originally thought to cover additional materials, which will cost you more in the long run.
You also want to work with someone who knows what they’re doing so you know your home is structurally sound and will be given the green light of approval when it comes time for inspections and appraisal.
If anything needs to be fixed, this will come out of your pocket.
Other than getting your builder and specifications for your home approved, a single-close construction loan works in the same way as traditional mortgages.
- Select a builder and finalize build plans for your home
- Meet with a lender and provide the required documents to qualify
- Once approved, the construction phase can begin
- Once construction is complete, sign closing documentation
- After closing, you can move into your newly-built or renovated home
Trust GO Mortgage to help you build your home
The single-close construction loan process can be pain-free.
GO Mortgage is here to help you every step of the way, for whatever financing needs you may have.
We offer multiple single-close construction loan programs to choose from, so not only do you have options, but you’ll be in good hands.Get started with GO Mortgage
Photo by Anete Lusina