A one-time close construction loan, also known as a single-close construction loan or construction-to-permanent loan, is a type of mortgage that combines the financing for both the construction of a new home and its permanent mortgage into a single loan transaction.

This type of loan simplifies the financing process for borrowers who are building a new home because it eliminates the need for separate loans for the construction phase and the permanent mortgage.

Here’s how a one-time close construction loan typically works:

1. Single Application and Closing: With a one-time close construction loan, borrowers submit a single loan application and go through only one closing process. This means they apply for financing for both the construction phase and the permanent mortgage simultaneously.
2. Financing for Construction Phase: During the construction phase, the lender disburses funds to cover the costs of building the home. These funds are typically released in stages or “draws” as construction milestones are met. Borrowers may make interest-only payments on the amount disbursed during the construction period.
3. Conversion to Permanent Mortgage: Once construction is complete, the loan automatically converts into a permanent mortgage without the need for additional paperwork or closing costs. The permanent mortgage terms, such as the interest rate and repayment schedule, are established at the beginning of the loan process.
4. Locking in Mortgage Terms: With a one-time close construction loan, borrowers can lock in their mortgage terms early in the process, providing certainty about their long-term financing costs. This can be advantageous, especially if interest rates are expected to rise during the construction period.
5. Streamlined Process: Combining the construction and permanent financing into a single loan simplifies the process for borrowers, as they only need to work with one lender and go through one closing process. This can save time, paperwork, and potential headaches compared to dealing with separate loans.
6. Lower Closing Costs: Since there is only one closing for both the construction and permanent phases, borrowers may save on closing costs compared to having two separate loans.

Overall, a one-time close construction loan offers convenience, simplicity, and potentially cost savings for borrowers who are building a new home.