Building your dream home is a journey that can seem daunting at times.
The best part about building your home is that you can customize it exactly how you want. But the downside, is figuring out funding for both your construction costs and mortgage.
Some qualified lenders, like Go-Mortgage, offers single-close construction mortgages, which help make the building and financial process financially painfree.
After reading, you’ll understand what single-close construction loans are, how they work, the benefits of these loans, when they’re a good idea and what the requirements are.
If you want to skip ahead and set up a consultation with one of our lending professionals, you can get started by filling out our questionnaire.
What are single close-construction loans?
Single-close construction loans, also known as single-close loans, are loans that fund both the construction and the purchase of your home, therefore you only close on your loan once.
Because you’re only closing on your loan once, you end up saving a lot of time and money. Convetional mortgage and construction loans will require multiple closings, meaning that you pay closing costs each time.
This is one of the reasons to love single-close. You get in your home faster and end up saving money while doing so.
How do single-close construction loans work?
Single-close construction loans have the same process as most loans, however it differs after you’re approved.
After you meet with a lender you trust you’ll follow these steps,
- Provide requirements and apply for a single close loan
- The underwriting process begins
- Loan approval
- Construction phase begins
- Construction phase ends
- Monthly payments begin
Before you can be approved you will need to provide all the necessary documentation, information and specifications required.
Once approved, the construction phase can begin and during this time, you can use the loan like a line of credit.
However, it’s important to be mindful of how the costs will add up in the long-run and not go over your construction budget.
Once the construction phase ends and you close on your newly built home, your single-close loan will convert to your permanent mortgage. This is when you begin making your monthly payments.
As you can see, this process streamlines the build and permanent mortgage into one process—which makes building your dream home affordable and financially painless.
The benefits of a single closing
As we already discussed, time and money are two major benefits.
Another benefit is that the interest rate on single-close construction loans are fixed and will remain the same throughout your loan term, no matter what happens in the market.
Some loans, such as the FHA construction loan, requires little to no down-payment on your future home.
The down-payment is a percentage of the home’s purchase price that’s paid upfront. For example, if your home is going to cost $250,000 with a 10% down-payment, you’ll pay $2,500 on your mortgage loan at closing.
This still applies to single-close. Depending on the single-close loan program you choose, a down payment may still be required for financing.
Lastly, this loan helps reduces your risk as a borrower as you only have to be approved once.
With multiple mortgages, you will have to requalify with each mortgage so if any unforeseen circumstance were to occur, you may not qualify.
You’re also saving an abundance of energy since you’re only providing the necessary requirements once to qualify.
Single-close construction loan requirements
The type of loan you apply for will determine the specific requirements of your loan.
For example, VA construction loans only apply to active duty members and veterans, along with veterans’ spouses; USDA loans will require you to choose from specific areas in which you can build.
However, there are some typical requirements you can expect when applying to any single-close construction loan.
Some common requirements you can expect include:
- W2s and verified income
- Proof of identification and credit history
- Low credit score, between 500-460
- Mortgage insurance
- Low loan to Income ratio
You must show you have stable and verified income which meets the requirements, and each loan’s income requirements may vary.
It’s important to note that you’ll start to see your credit score increase once you consistently meet your monthly permanent mortgage payments.
All mortgages will require mortgage insurance. This is a way for lenders to protect themselves if the borrower defaults on their loan.
You’ll also want to have a low loan to income ratio to show that you are secure in your fiances. Many lenders want to see that you are making more money than what you owe.
If you’re considering of applying, then it would be best to speak with a qualified lender who offers various single-close products.
This will give you the opportunity to see what options are available to best meet your home, and financial, needs.
Is a single-construction loan a good idea?
If you’re considering building your home and want to keep the process simple, then a single-close construction loan is the right choice for you.
You’ll work with one lender, will only close once and only have one mortgage.
You should review the specific requirements of each type of loan to be able to determine if a single-close would meet your needs, especially since some single-close construction loans have uniqure requirements.
If you’re looking to be in your home in a timely-manner, however, and not “break the bank” in doing so, reach out to Go Mortgage to learn more about our construction loan programs.
We provide VA, FHA, USDA, and Fannie Mae single-close construction loans which are great for first time buyers, include fixed or adjustable interest rates and competitively low interest rates.
Reach out to us today to get started on the process and learn more about our special offerings.
Photo by Tima Miroshnichenko