Single Close Construction Loans
Single Close Construction Advantages
- Good first-time homebuyer alternative solution
- Lower credit scores accepted
- Low & no money down payment options available
- Interest rates are competitive
- Both fixed & adjustable interest rate program options available
- No monthly mortgage insurance
- Payment flexibility during construction
Building a home of your very own can feel just like a dream. It allows you flexibility to make the house you desire in a place of your choosing.
Going the route of a new build is a big decision with a big commitment. With a single close construction loan product, the process can be simplified, in many cases.
What is a Single Close Construction Loan?
A single close construction loan is a specialized financial product that provides borrowers with a streamlined approach to financing the construction of a new home. It is a comprehensive loan that combines the construction loan and the permanent mortgage into a single transaction, hence the name “single close.”
Unlike traditional construction loans that require two separate loans, with one for the construction phase and another for the permanent financing, a single close construction loan simplifies the process by consolidating everything into a single loan package. This means that borrowers only have to go through the application and approval process once, saving time and effort.
With a single close construction loan, the borrower receives the funds needed to cover both the construction costs and the long-term mortgage in one closing. This eliminates the need for a second closing and the associated costs and potential complications that can arise from coordinating two separate loans.
Furthermore, a single close construction loan offers greater convenience for borrowers by providing them with a single set of loan terms, including interest rates and fees, for the entire duration of the loan. This stability allows borrowers to plan their finances more effectively, knowing exactly what to expect throughout the construction and mortgage repayment phases.
In summary, a single close construction loan simplifies the financing process for building a new home by combining the construction loan and permanent mortgage into a single transaction, offering convenience, cost savings, and greater financial predictability for borrowers.
How Do Single Close Construction Loans Work?
There are many similarities in qualifying for a single close construction loan product when comparing it to a conventional home loan product. Below we’ve outlined the steps needed and loan programs available to help you understand the process. These can obviously vary from lender to lender, but these steps will give you a nice baseline:
The Single Close Construction Financing Process
The process of obtaining a single close construction loan typically involves six financing steps. Here is an explanation of each step:
- Prequalification: This initial step involves determining your eligibility for a single close construction loan. Lenders will assess factors such as your credit history, income, and debt-to-income ratio to determine the loan amount you may qualify for. Prequalification gives you an idea of your budget and helps set realistic expectations for your home construction project.
- Loan Application: Once you’ve identified a suitable lender, you will need to complete a loan application. This involves submitting the necessary documentation, such as financial statements, income verification, and details about the property you plan to build. The lender will review your application and supporting documents to assess your creditworthiness and the feasibility of the project.
- Construction Loan Closing: If your application is approved, you will proceed to the closing stage. During this step, you will sign the necessary loan documents, including the construction loan agreement, which outlines the terms, conditions, and interest rates for the construction phase of your project. The closing typically involves paying any required fees and obtaining construction insurance.
- Construction Phase: With the loan closed, you can begin the construction of your new home. During this phase, the lender will disburse funds to your builder or contractor in installments, known as “draws,” based on pre-determined milestones or completion percentages. The disbursement of funds is typically subject to inspections to ensure that the work meets the agreed-upon standards.
- Conversion to Permanent Mortgage: Once the construction is complete, the loan transitions from the construction phase to a permanent mortgage. This step involves another closing process, where you sign new loan documents that convert the construction loan into a long-term mortgage loan. The permanent mortgage terms, such as interest rates and repayment period, will be determined and finalized during this stage.
- Repayment: The final step involves the repayment of the permanent mortgage loan. You will make regular monthly payments to the lender, which typically includes principal and interest. The repayment terms will be outlined in the loan agreement, and you will continue to make payments over the agreed-upon period until the loan is fully repaid.
By following these six financing steps, you can navigate the process of obtaining and repaying a single close construction loan, allowing you to finance and build your dream home efficiently and seamlessly.
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Review our requirements and descriptions of the lending choices available to our partners.
The Single Close Construction Financing Process
There are several different specialized Single Close Construction offerings out there. Many of the programs are government-backed, meaning they follow a set of standard rules.
Government backing also allows borrowers to secure their financing with low or no down payments and even “lower than you might think” credit scores, as long as you meet the baseline eligibility requirements.
All available mortgage programs can be used to finance the actual new construction build as well as the land the home will be built on.
To learn more about some of the single close construction loan options that might be available to you, check out the list below:
U.S. Department of Agriculture (USDA) Single Close Construction Loans
A U.S. Department of Agriculture (USDA) Single Close Construction Loan is a financing option offered by the USDA to support the construction of a new home in eligible rural areas. This loan program is specifically designed to assist individuals or families with moderate to low incomes who may not have access to traditional financing options.
The USDA Single Close Construction Loan combines the financing for both the construction phase and the permanent mortgage into a single loan. It eliminates the need for borrowers to secure separate loans for each phase, streamlining the process and reducing paperwork and closing costs.
To qualify for a USDA Single Close Construction Loan, the property being built must meet certain location criteria set by the USDA. It must be in an eligible rural area designated by the USDA and meet specific requirements related to population density and development.
The loan terms and conditions for a USDA Single Close Construction Loan are favorable for borrowers. They typically feature low or no down payment requirements and competitive interest rates. Additionally, these loans offer flexible credit guidelines and options for financing closing costs and related expenses.
It’s important to note that USDA Single Close Construction Loans are administered through approved lenders, such as banks and mortgage companies, that participate in the USDA loan program. These lenders work with borrowers throughout the loan process, from application to closing, and handle the disbursement of funds during the construction phase.
In summary, a USDA Single Close Construction Loan is a financing solution offered by the USDA to help individuals or families with moderate to low incomes build homes in eligible rural areas. It simplifies the construction and permanent mortgage financing process, offering favorable terms and assisting borrowers who may face challenges accessing traditional loans.
Veterans Administration (VA) Single Close Construction Loans
A Veterans Administration (VA) Single Close Construction Loan is a specialized financing option available to eligible veterans and active-duty military personnel. It is designed to assist them in building a new home or making substantial renovations to an existing property.
The VA Single Close Construction Loan combines the financing for both the construction phase and the permanent mortgage into a single loan, eliminating the need for separate loans and simplifying the process. This means that borrowers only need to go through the application and approval process once, saving time and effort.
To qualify for a VA Single Close Construction Loan, borrowers must meet certain eligibility requirements set by the VA. These requirements typically include having a valid Certificate of Eligibility (COE), meeting minimum service requirements, and meeting credit and income qualifications.
The loan terms and conditions for a VA Single Close Construction Loan are advantageous for borrowers. They often include low or no down payment requirements, competitive interest rates, and flexible credit guidelines. Additionally, VA loans do not require private mortgage insurance (PMI).
VA Single Close Construction Loans are administered by approved lenders who work closely with borrowers throughout the loan process. These lenders handle the application, underwriting, and disbursement of funds during the construction phase, ensuring a smooth and efficient experience for the borrower.
In summary, a VA Single Close Construction Loan is a specialized financing option available to eligible veterans and active-duty military personnel. It combines the financing for construction and permanent mortgage into a single loan, providing favorable terms and simplified process for those looking to build or renovate a home.
Federal Housing Administration (FHA) Single Close Construction Loans
A Federal Housing Administration (FHA) Single Close Construction Loan is a type of mortgage offered by approved lenders and insured by the FHA. It is designed to facilitate the construction of a new home or significant renovations to an existing property.
The FHA Single Close Construction Loan streamlines the financing process by combining the construction loan and permanent mortgage into a single loan package. This eliminates the need for borrowers to obtain separate loans for each phase, simplifying the application and approval process.
To qualify for an FHA Single Close Construction Loan, borrowers must meet certain criteria established by the FHA. These criteria typically include creditworthiness, income qualifications, and compliance with FHA property standards. The property being constructed or renovated must also meet specific requirements set by the FHA.
The loan terms for an FHA Single Close Construction Loan are generally favorable for borrowers. They often feature low down payment requirements, flexible credit guidelines, and competitive interest rates. FHA loans also allow borrowers to finance certain closing costs, reducing upfront expenses.
FHA Single Close Construction Loans are administered by approved lenders who guide borrowers through the loan process. These lenders handle the application, underwriting, and disbursement of funds during the construction phase, ensuring a smooth and efficient experience for the borrower.
In summary, an FHA Single Close Construction Loan is a mortgage option insured by the FHA that simplifies the financing of new home construction or significant renovations. It combines the construction loan and permanent mortgage into a single loan, offering favorable terms and a streamlined process for borrowers.
Fannie Mae Single Close Construction Loans
A Fannie Mae Single Close Construction Loan is a financing option provided by Fannie Mae, a government-sponsored enterprise in the United States. It is designed to support the construction or renovation of a new home or property.
The Fannie Mae Single Close Construction Loan simplifies the financing process by combining the construction loan and permanent mortgage into a single loan package. This eliminates the need for borrowers to secure separate loans for each phase, streamlining the application and approval process.
To qualify for a Fannie Mae Single Close Construction Loan, borrowers must meet certain eligibility requirements, including creditworthiness, income qualifications, and compliance with Fannie Mae’s property standards. The property being constructed or renovated must also meet specific guidelines set by Fannie Mae.
The loan terms for a Fannie Mae Single Close Construction Loan are typically competitive and may include options for low down payments and flexible credit requirements. The interest rates on these loans may be fixed or adjustable, depending on the borrower’s preference.
Fannie Mae Single Close Construction Loans are offered through approved lenders who work with borrowers throughout the loan process. These lenders handle the application, underwriting, and disbursement of funds during the construction phase, ensuring a smooth and efficient experience for the borrower.
In summary, a Fannie Mae Single Close Construction Loan is a financing option provided by Fannie Mae that simplifies the construction or renovation of a home. It combines the construction loan and permanent mortgage into a single loan, offering competitive terms and a streamlined process for borrowers.
Single Close Construction Loans FAQs
Below is a compilation of frequently asked questions regarding single close construction loans. These questions cover various aspects of the loan process, eligibility requirements, benefits, and other key details. Familiarizing yourself with these commonly asked questions can help you gain a better understanding of single close construction loans and make informed decisions when considering this financing option.
What type of property can I finance with a single close construction loan?
Single close construction loans apply to a wide range of property types. When you connect with us, we’ll discuss whether your property and build type will qualify.
Below are common property types we’re able to finance with single close construction loans:
Single family residences
Owner occupied
Modular
Manufactured
Site built
Stick built
Doublewide
Factory built
“Build on your lot”
Land home
Barndominiums
Post Frame
Do I need good credit to qualify for a single close construction loan?
Credit is one factor used to decide how much you can finance with a single close construction loan.
The minimum requirements vary depending on the loan program. In many cases, a credit score of 640 or higher is often best. A credit score of 700 or above is considered low risk, while a score of 800 to 850 is exceptional.
We will examine your entire financial outlook and work with you to find a loan solution that meets your needs, considering many factors including your credit score, current income, and investments.
Do I need a down payment for a single close construction loan?
ButtonWhether you need a down payment for your loan depends on the specific loan program you decide to use.
Our single close programs offer down payments anywhere from 0-3.5% to a maximum of 5%. This is a small fraction of what other lenders typically ask for with traditional construction loans, which require a down payment of around 20% to get the best loan terms.
How do single close construction loan interest rates compare to other construction loans?
Interest rates for single close construction loans vary based on a variety of factors including your credit score, the location where you want to build, your loan type, and loan amount.
To know what interest rate your situation would qualify for, get in touch with one of our loan advisors for more specific information.
What happens with financing after closing a single close construction loan?
Most of the lending process will be handled for you behind the scenes by our team and your builder. You’ll just want to be ready to discuss your needs with your builder and read contracts closely at each stage of the process. We’re always here to help.
With a single close construction loan, you receive both an interim construction loan and a 30-year permanent loan at the same time. You get a single promissory note and one deed of trust. You’ll sign the 30-year amortizing promissory note at closing.
Once the promissory note is signed, any liens on the land will be automatically paid off. A draw amount will be made available to the builder so construction can start right away.
When the project is complete, you’ll receive a loan modification to amend the date for first payment. After the loan modification is signed, the 30-year amortizing loan works like any other home loan with fixed interest rates.
How does my lender get involved with the construction of my new home?
We have an in-house single close construction management team. Using our years of experience and home-building expertise, our experts review and approve documentation from every stage of construction.
This includes project budget and timeline, planning and specifications, permits and inspection, and building code best practices.
At the start, you’ll want to find and engage the builder of your choice as long as they meet the quality standards for our program. Our builder vetting process ensures that all builders accepted into our program have a sterling record of on-time completion for their home projects. Quality, safety, and efficiency are our top priorities.
Our team will help keep your project on track every step of the way. This allows potential problems to be dealt with before they can turn into major delays.
Our completely hands-free building process means you never need to worry about applying for building permits or arranging inspections as your construction takes shape. It is all handled for you. The documentation you might need in the future is centralized all in one place.
Are there other names for single close construction loans?
Single close construction loans have other names as well.
As you work with builders and lenders, you might hear single close construction loans referred to as single close loans, construction-to-perm loans, one-time close loans, construction conversion loans, CTP loans, or even all-in-one loans.
