What Is A One-Time Close Construction Loan?

What Is A One-Time Close Construction Loan?  

A construction loan is a short-term loan that allows people who’d like to build a custom home the financing to cover the cost of custom home building. Different from a conventional mortgage, a construction loan is a balanced coordination between your building contractor and your lender. The lender supervises the build process from beginning to end, ensuring the contractor adheres to previously agreed on stringent build guidelines. 

One-time close construction loans – offered by Williamsport mortgage broker Principle Home Mortgage – are even more convenient than traditional construction loans. These loans are done with only one mortgage, meaning less paperwork and meetings for you, the borrower.  
 
How Is It Different From a standard mortgage? 
Unlike a standard mortgage, a one-time close construction loan allows hypothetical collateral to be used to secure the financing.  This loan type or mortgage is used specifically to fund the construction and land acquisition when building a home.  Williamsport mortgage broker Principle Home Mortgage currently offers this type of financing with FHA, conventional, USDA, and VA financing.  

 
What Are The Benefits of Getting a One-Time Close Construction Loan? 
Shane Whitteker is the owner and chief broker at Williamsport mortgage broker Principle Home Mortgage. 

“A construction loan facilitates the construction of a new home,” Whitteker says. “Without a construction loan the contractor would have to fund the entire project including the land which is not that common. Another option would be that the buyer would fund the construction out of pocket. Both of these scenarios are unlikely for a custom built home.” 

• Flexible terms
Construction loans with Principle Home Mortgage are offered with different lending options available and flexible terms with credit and debt to income ratio. 

• Freedom to choose
Construction loans allow you to choose your contractor, interior designer, and finishes. You'll decide exactly how you want your new home to be built – room by room. Then your lender will ensure your dreams become solid, well-built reality. 
 
• Transition to permanent loans 
This is not necessary when doing a one time close construction loan.  The one time close construction loan is designed to provide construction and permanent financing in one package. 
 
Is a Construction Loan Harder To Get Than Other Types of Mortgages? 
According to Whitteker, while a construction loan is not more difficult to qualify for than other types of mortgages, the process can be more involved. 

“There is more information required to approve the project,” Whitteker says. “This mainly revolves around the contractor and the information that they have to provide.” 
 
A construction loan can be more complicated to get than a conventional mortgage. The lender will want details of the build in addition to other information they’ll usually coordinate with the home builder.  
 
Can I Refinance a Construction Loan? 
Refinancing a construction loan is easy. When you refinance a construction loan, you will get another loan and pay off the old one.  

“Yes, you can refinance a construction loan the same way you would refinance any mortgage,” Whitteker says. 
 
How Long Is The Term On a Construction Loan? 
With a one time close construction loan the term is typically set to 15, 20, or 30 year terms.  The term options are similar to a non construction mortgage.    
 
What Are The Limits a Borrower Could Take Out On a Construction Loan? 
There are minimum amounts that banks won’t work with less than. As far as the maximum limits on how much you could borrow on a construction loan, it depends upon which loan program you go with, and its corresponding maximum loan limits.  

“There isn’t a specific minimum loan amount but most banks won’t go below $50,000,” Whitteker says. “The maximum depends on the loan program. If using Fannie Mae or Freddie Mac you would have the max conventional loan limits to work with.  If using FHA you would have the HUD maximum mortgage limit set for FHA.”  
 
What Happens If I Need To Pay Back The Construction Loan Early? 
This depends upon the lender, but generally there are no penalties if you elect to pay back your construction loan ahead of schedule. 

“In general the answer is no but it is possible that some small institutions may set a pre-payment penalty, this is not common,” Whitteker says. 
 
What Is An Overlooked Part Of Getting A Construction Loan? 
Before you get a construction loan to help you build your dream home, you’ll want to get a great contractor. Much of the process of getting and maintaining a construction loan depends upon the lender’s coordination with the contractor you select. Choose wisely – you'll want a contractor who not only can build you a great home, but also one who has a proven history of successfully working with construction loans to develop a project.  
 
What Am I Allowed To Pay With a Construction Loan? 
According to Whitteker, construction loans are not set up to be home improvement loans or home renovation loans. There are other mortgage programs that cover those areas. Construction loans are home builds closely monitored by your lending institution from start to finish. The bank will usually not grant a construction loan unless it has been involved in the construction from the very start of the project. 

“You bring money to closing for down payment on the overall project.  You don’t get to pay for specific aspects of the construction,” Whitteker explains. “The bank will want to manage the project from start to finish. Banks usually won’t fund a project that was started previously.” 

Principle Home Mortgage in Williamsport, Pennsylvania, specializes in one-time close construction loans. Contact them today at (570) 980-9359 to learn more.