A custom home is a dream of many families. Another benefit of building a house over buying an already-built home is the ability to tailor every aspect to suit your lifestyle. But as thrilling as it is to customize a floor plan, pick finishes, and select the ideal lot, the financial side of these transactions can be incredibly daunting. Which is when a One-Time Close Construction Loan (otherwise known as an OTC loan) can make a difference. It’s a funding option built to be easier, less stressful and more affordable, not only for building your home the way you’ve always wanted it, but for forking out that deposit, too.

In this post, we’ll explain what a One-Time Close Construction Loan is and how it works, as well as why it’s the ideal way to finance your dream dwelling.

What Is a One-Time Close Construction Loan?

Back in the day, in order to get a loan to build a new house, you had to get two different loans:

1. Construction Loan – Money provided for the construction of buildings, often used to pay contractors and materials suppliers.
2. Permanent Mortgage – After construction has finished, homebuyers must refinance into a traditional mortgage.

While this two-stage approach can be effective, it involves extra paperwork, multiple loan applications, separate closings, and in many cases, double fees.

A One-Time Close Construction Loan resolves that dilemma with a single combined loan package. You make one application, pass one approval process and attend one closing. The loan finances the construction phase of the process and then converts to your permanent mortgage after your home is finished.

How It Works

Here is how to breakdown the process of a One-Time Close Construction Loan:

1. Application and Approval
2. The loan must be sought while the property is under construction.
3. Then, the lenders consider your credit, income and the project itself.
4. When approved, you are set for both construction and long-term financing.

• Construction Phase
• Funds are paid out in stages (known as “draws”) as construction progresses.
• The lender pays invoices from contractors directly.
• During this phase, you usually pay interest only on the amount you draw, not the entire loan.

• Conversion to Permanent Mortgage
• Once your custom home is finished, the construction loan automatically becomes your permanent mortgage (whether it’s a fixed-rate or adjustable-rate mortgage), so you won’t need to make another trip to our offices.
• There is no second closing, and you won’t have to reapply for a different loan.

Benefits of a One-Time Close Construction Loan

1. One Closing, One Set of Fees

In a typical two-loan process, you pay closing costs twice: for the construction loan and for the mortgage loan. A One-Time Close loan consolidates that cumbersome process into a single closing, which saves borrowers thousands of dollars in fees and eliminates double the paperwork.

2. Simplified Approval

The approval of the loan occurs once, at the start. You also won’t need to qualify for a mortgage again after construction, which could be a risk if your financial status changes when the building is done.

3. Locked-In Interest Rates

Since the loan will convert to your permanent mortgage at the end, you can also lock in your interest rate at the outset. That can give you some peace of mind that you won’t get stuck with a sky-high rate while it takes three or six months to build your home.

4. Convenience and Less Stress

Managing two loans can be onerous and time-consuming. With a One-Time Close Construction Loan process, you can minimize the confusion because it provides you with a single route for everything from beginning to end.

5. Budget Confidence

“You’re locked in, so you have certainty on what future payments will look like,” she said. This predictability can make it easier for you to budget through the process.

Why it’s perfect for Custom Homes

Constructing a custom home is hard enough, what with architects’ plans, permits, contractors, builders, and inspections. The very last thing you want is to have a financing process that is every bit as daunting.

It’s why One-Time Close Construction Loans and custom home building are like two peas in a pod:

• Flexibility for Design Modifications: Because money is taken out of the loan as construction work is done, you and your builder have flexibility if small design modifications are made.
• Matching with the Construction Program: Payments are linked to construction progress and don’t have to wait for any separate funding.
• Peace of Mind for You and Your Family: With your mortgage already approved, you can enjoy building the home you want for the lifestyle you are looking for without the risk of re-approval or the loan conditions you may face otherwise.

Comparing One-Time Close to Traditional Construction Loans

Feature	One-Time Close Construction Loan	Traditional Two-Loan Process
Number of Closings	1	2
Loan Applications	1	2
Fees	Paid once	Paid twice
Interest Rate	Locked in at start	May change between construction and mortgage
Stress Level	Lower	Higher
Risk of Re-qualification	None	Yes, after construction

This side-by-side comparison shows why the One-Time Close approach is considered more efficient for many borrowers.

Who Can Benefit Most?

Who are one-time close construction loans especially good for?

• First-Time Custom Home Clients: Takes the headache out of the process and eliminates financial shocks.
• Families on a Budget: Saves on double fees and guarantees fixed costs.
• Borrowers Who Are Rate Obsessed: Securing a rate early in the process bolsters defenses against the whims of the market.
• Service members and their families: Some lenders have the option of a VA One-Time Close Construction Loan that offers extra features including no money down.

Key Things to Consider Before Applying

As useful as a One-Time Close Construction Loan is, it’s not for everyone. Here are a few considerations:

1. Credit and Income Prerequisites – Lenders often evaluate excellent credit and consistent income. VA or FHA programs may offer more relaxed standards.
2. Builder Approval – You have to use one of their approved builders with lender approval. Ensure your contractor is qualified and meets lender requirements.
3. Project Description – Loan is for single family or custom homes. Mega developments or investment properties may not be eligible.
4. Loan Limits – Make sure the cost of your project is within the lending limits for the program you are applying.

Steps to Get Started

Here’s a guide to this type of financing if you’re considering it:

1. Research Lenders – Not all lenders offer One-Time Close loans. Find one experienced in this area.
2. Get Pre-Approved – Determine how much you qualify for and align it with your home-building budget.
3. Choose Your Builder – Select a reputable contractor who is approved by the lender.
4. Finalize Plans – Have blueprints, cost estimates, and timelines ready.
5. Close on the Loan – Complete the single closing and move forward with construction.

The Bottom Line

Financing a custom home doesn’t have to be as “scary” as it may sound. A One-Time Close Construction Loan provides an all in one solution that combine construction financing with permanent financing all wrapped into one easy closing. Only one application, one closing, one interest rate lock to focus more on designing the home of your dreams and less on financing the loan.

For those who are considering building a custom home, this loan offers clarity, confidence and a convenient process. Whether you are a first-time home builder or moving up to a larger home, a One-Time Close Construction Loan will save you just enough time to make the financing part a breeze.