One Time Close - 30 year fixed rate mortgage program
Allows you to obtain your interim construction financing and your permanent mortgage in one single transaction. This loan secures your permanent mortgage and interest rate before construction begins. This eliminates the hassle of going through the loan process again once construction is finished, paying closing cost again, worrying about what interest rates may do, and the permanent mortgage is guaranteed regardless of what your job status is, credit score, and asset situation is.
One Time Close without a rate lock
This is not the same as the OTC above and some lenders will advertise this as such, but there is a big difference. This transaction does allow you to close in one transaction so there is no need return to a title company and close a 2nd time, or pay closing cost again. However, your interest rate is not locked in, you will be required to qualify again for the permanent mortgage, and you will be required to have your home appraised again. This allows lenders who provide interim construction loans and permanent mortgages to underwrite your file at the end of construction, lock in your loan, and close the transaction out so that your loan can be sold in the secondary market via Fannie Mae, Freddie Mac, or other Investors. Although this is a good option it does place risk on potential rising interest rates during construction and the ability to qualify for the permanent mortgage. If you have had a loss of income, change in job status, credit scores for some reason drop, lack of reserves required, a lower 2nd appraisal it could be difficult to qualify for the permanent mortgage.
Interim Construction Loan (Two Time Close)
This is one single transaction and is very common in construction lending. Typically you will work with a local or regional lender who will provide you the funds to build your home. Once construction is finished you will be responsible to obtain your permanent mortgage, or second closing. The lender will give you a certain timeline that the build needs to be completed by and the permanent mortgage needs to be closed and in place to pay off their interim loan in full.
Once construction is finished you will be responsible to obtain your permanent mortgage. The lender will give you a certain timeline that the build needs to be completed by and the permanent mortgage needs to be closed and in place to pay off their interim loan in full. This method is the least convenient to the borrower.
One Time Close Loan