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What is a One Time Close Construction Loan (OTC)?


A One-Time Close Construction Loan is a single loan that covers both the construction of a new home and the permanent mortgage once the home is completed.

Instead of applying for a separate construction loan and then refinancing into a regular mortgage later (which means two closings, two sets of fees, and more paperwork), the One-Time Close program wraps everything into one transaction—saving time, money, and hassle.

✅ Key Features & Benefits


🏡 One Closing Only

  • Just one loan, one set of paperwork, and one closing cost
  • Avoids the risk of re-qualifying or interest rate changes during construction

💰 Financing for Land + Build

  • You can use this loan to:
    • Buy land
    • Build on land you already own
    • Tear down and rebuild on your current lot

🔒 Locked Interest Rate

  • Lock in your long-term mortgage rate at the start—before construction even begins

🧾 Simple Payment Structure

  • During construction: You make interest-only payments (or sometimes none at all, depending on the program)
  • After completion: Loan converts into a standard 15-, 20-, or 30-year mortgage

🛠️ Works With Government-Backed Loans

  • Available with FHA, VA, and USDA loan programs
  • Lower down payments than conventional construction loans (as little as 0% to 3.5% down, depending on the loan type)

🏗️ How It Works — Step-by-Step

  1. Pre-Approval & Planning
    • Get pre-approved based on your income, credit, and budget
    • Work with a licensed builder to create home plans and a cost estimate
  2. Loan Application
    • Apply for the full loan amount: land + construction + permanent mortgage
    • Your lender reviews the builder, project budget, and plans
  3. Closing
    • You close on the full loan before construction starts
    • Funds are set aside in a draw account to pay the builder as work progresses
  4. Construction Phase
    • Builder gets paid in stages (called “draws”) as milestones are completed
    • You may make interest-only payments during this time
  5. Completion & Conversion
    • Once the home is finished and passes inspection, the loan automatically converts into a permanent mortgage—no second closing or refinance needed

📋 Basic Borrower Requirements

  • Credit Score: Usually 620+ (varies by lender and loan type)
  • Down Payment:
    • FHA: 3.5%
    • VA: 0% (if eligible)
    • USDA: 0% (in eligible rural areas)
  • Qualified Builder: You must use an approved, licensed general contractor
  • Debt-to-Income Ratio: Needs to fall within FHA, VA, or USDA guidelines
  • Reserves: Some lenders may require extra savings ("reserves") after closing

🏠 Is It Right for You?

A One-Time Close loan may be a great fit if you:

  • Want to build a custom home or buy land and build
  • Don’t want to deal with multiple closings or higher-risk refinance terms
  • Are eligible for FHA, VA, or USDA financing
  • Prefer to lock in your rate and budget upfront