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Did you know you can secure the financing for the construction of your dream home and the permanent mortgage in a single transaction?
One-time close or single-close construction loans cover the costs of the building process and transition into a permanent loan once construction is complete.
Let’s explore how single-close construction loans work and what a borrower needs to do to qualify for this helpful loan product.
Start your application with MIDFLORIDA Credit Union.
What is a single-close construction loan?
A single-close construction loan combines a short-term construction loan with a long-term mortgage.
The single-close loan is designed to cover the costs associated with building a new home before transitioning into a traditional home loan.
What do construction loans cover?
Construction loans typically provide funding for the following:
- Land acquisition
- Materials
- Labor
- Contractor fees
- Permit fees
- Architectural and design fees
- Site preparation
During the construction phase, borrowers only have to make loan interest payments.
With a single-close construction loan, once construction is complete the loan automatically converts into a permanent mortgage and the borrower begins making regular payments.
What is a permanent loan?
A permanent loan is a traditional mortgage or home loan that is used to finance the purchase of a home.
Traditional mortgages, known as conventional loans, have longer terms that allow the borrower to repay the loan over an extended period. Terms commonly range from 15 to 30 years.
Conventional home loans can have fixed or adjustable interest rates.
Fixed-rate mortgages maintain a constant interest rate throughout the loan term, while adjustable-rate mortgages have rates that adjust periodically.
What is a single closing?
When a single-close construction loan is not used, the construction and permanent loan process involves two separate transactions: a construction loan for the building phase and a permanent mortgage for the long-term financing of the completed home.
Borrowers would have to apply for a construction loan with a lender, wait for approval and close on the loan.
They would then apply for a permanent loan and go through another approval process and closing.
The key benefit of a construction-to-permanent loan is the single closing, which saves borrowers the time and closing costs associated with two separate loans and two separate closings.
What do closing costs include?
Closing costs include the following fees associated with processing and closing a loan:
- Origination fees
- Appraisal fees
- Title insurance
- Survey fees
- Legal fees
- Closing fees
- Credit report fees
Closing costs typically range from 3 to 6 percent of the total cost.
If a borrower gets a construction loan and a permanent loan separately, they will pay double the costs to close.
Depending on the total loan amount, this can add up to thousands of dollars.
What is the difference between a one-time and two-time close?
Let’s explore the key features of one-time close and two-time close construction loans.
One-time close
- Single closing that covers both the construction phase and the permanent mortgage.
- Streamlined, simplified process with a single closing, reducing time, money and paperwork.
- Borrowers typically can lock in the interest rate for the permanent mortgage at the beginning of the process, which helps with financial predictability.
Two-time close
- Two separate closings—one for the construction phase and the other for the permanent mortgage.
- Borrowers must choose and apply for permanent financing after construction is complete.
- Potential for interest rate fluctuations between the construction and permanent phases, which could impact the overall cost of financing.
- Generally results in higher upfront closing costs because there are two sets of closing transactions with associated fees.
Which option is more beneficial?
Single-close construction loans often are more beneficial for borrowers due to the time and cost savings.
They provide a layer of financial security with the ability to lock in your permanent loan’s interest rate before the start of construction.
Home builders normally prefer the simple, efficient single-close process.
Ultimately, the best loan options depend on the borrower’s priorities and preferences.
Consult with the knowledgeable mortgage specialists at MIDFLORIDA for personalized guidance based on individual circumstances.
We help borrowers make informed decisions that align with their goals.
What are the requirements for a single-close construction loan?
Single-close construction loans often require a down payment of at least 10% of the purchase price.
A mortgage specialist will evaluate your income, debt and credit history during the application process and request proof with documentation.
Borrowers will make interest-only payments during construction, and have the option of choosing a fixed-rate or adjustable-rate permanent mortgage with flexible loan terms of up to 30 years.
MIDFLORIDA also offers borrowers jumbo loan options.
How does a construction-to-permanent loan work?
Single-close construction loans involve several steps.
Here is what you can expect:
- Start the loan application process.
- Choose a builder (who must be reviewed and approved by the lender).
- Work with an architect to create detailed plans for the home.
- Apply for the loan once the plans and budget are finalized.
- Close on the loan.
- Begin construction (inspections are required before each draw).
- Transition to a permanent mortgage once construction is completed.
Your lender will guide you through the loan process from start to finish, ensuring you understand the requirements and supply the necessary documentation to keep the process moving as smoothly as possible.
Apply today with the experts at MIDFLORIDA Credit Union
Your lender’s knowledge and experience with single-close construction loans are key to the success of your project.
Start your application with MIDFLORIDA Credit Union to enter the first step of the one-time close construction loan process.
At MIDFLORIDA, we understand that building your dream home is not just a financial investment—it's a personal journey.
We are committed to providing a personalized, positive experience that is tailored to your unique circumstances.
