FAQs

A construction mortgage is a short-term loan used to finance the building of a new home. Unlike a traditional mortgage, which finances the purchase of an existing home, a construction mortgage provides the funds necessary to pay for the materials, labor, and other costs associated with constructing a new property. Once the home is completed, the construction loan is typically converted into a permanent mortgage.

A one-time close construction loan, also known as a construction-to-permanent loan, combines the construction loan and the permanent mortgage into a single loan with one closing. This means you only have to go through the loan application and approval process once and pay only one set of closing costs.

A two-time close construction loan involves two separate loans: one for the construction phase and another for the permanent mortgage. This requires two closings, which means you’ll go through the loan approval process twice and pay closing costs twice.

A one-time close construction loan can save you both time and money. Since you only need one closing, you’ll save on closing costs and reduce the complexity of the loan process. Additionally, this type of loan offers the security of locking in your interest rate from the start, which can protect you from rising interest rates during the construction phase.

During the construction phase, funds from your construction mortgage are disbursed in stages, known as “draws.” These draws correspond to specific milestones in the construction process, such as laying the foundation or framing the structure. An inspector will verify that each milestone is completed before the funds are released.

For a one-time close construction loan, once construction is complete, the loan automatically converts into a permanent mortgage, and you begin making regular mortgage payments based on the terms agreed upon at closing. With a two-time close loan, you’ll need to go through a second closing to secure your permanent mortgage.

Making changes to your construction plan after the loan is approved can be challenging, especially with a one-time close loan. Any changes may require re-approval from the lender, which could delay the project and potentially increase costs. It’s essential to have a well-defined plan before finalizing your loan.

Yes, construction mortgages carry certain risks, including cost overruns, construction delays, and changes in market conditions. To manage these risks effectively, it’s crucial to work with experienced professionals and have a contingency plan in place.

Construction mortgages can finance various types of properties, including single-family homes, modular homes, and, in some cases, multi-family residences. However, the specific types of properties eligible for financing may vary by lender.

Qualifying for a construction mortgage typically requires a good credit score, a low debt-to-income ratio, and a detailed construction plan, including a budget and timeline. Lenders will also require a down payment, which may vary depending on the loan type and lender.

Construction Mortgage Experts specialize in connecting you with lenders who offer competitive construction loan options, mainly one-time close construction loans. We provide the guidance and resources to make informed decisions and secure the best financing for your home-building project.