What Is a One-Time Close Loan - and Is It Right for Your New Build?

If you're planning a new build, the financing question arrives early: before you've picked a builder, before ground breaks, before a single wall goes up. How do you borrow money for a home that doesn't exist yet?

A one-time close loan is how most buyers building from the ground up answer that question. If you've heard the term but aren't sure how it works or which program fits your situation, this guide covers both.

A one-time close (OTC) loan (also called a construction-to-permanent loan) combines construction financing and your permanent mortgage into a single loan. You apply once, close once, and when construction is complete, your loan converts automatically to a standard mortgage, with no second application and no second round of closing costs.

The rate locks at your construction loan closing, before construction begins. In Q3 2025, the NAHB's AD&C Financing Survey recorded average construction loan rates at 8.34% versus 6.89% for a 30-year fixed mortgage over the same period - a 1.45-point spread. Verify current rates when you're ready to apply; the spread narrows or widens with market conditions.

There are two things worth asking your lender about upfront. First, whether your loan includes a float-down provision (which lets you capture a lower rate if rates drop before the construction loan closes), and second, what the rate lock extension policy is if construction runs longer than expected. Most lenders charge a fee to extend your rate lock if construction runs long, so keep in mind that the builder's timeline can affect your loan costs, not just your move-in date.

The alternative is a two-close loan: a short-term construction loan funds the build, and when the home is finished, you apply for a permanent mortgage to pay it off. That means two separate underwriting processes, two closings, and two sets of closing costs. For most buyers, the OTC structure is the cleaner choice - though specific scenarios where two-close makes more sense are covered below.

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OTC loans come in four forms, each tied to a different loan program. The table below is a quick reference; each type is covered in detail in the sections that follow.

For qualified, eligible borrowers. These are VA and USDA program features, not lender benefits.

FHA OTC loans are backed by the Federal Housing Administration and are the most accessible option for buyers who don't qualify for VA or USDA. No geographic restrictions or income limits, though loan limits vary by county.

FHA loans are available to any qualifying buyer, not just first-time homebuyers. They require mortgage insurance regardless of down payment: an upfront premium of 1.75% of the loan amount, plus an annual premium paid monthly. Factor these into your cost comparison with other loan types.

One step to take early: FHA construction loans require an FHA-approved builder. Verify your builder's status before you're committed to a contract.

However, it's worth checking out FHA Loan Limits before you opt for one.

The VA OTC loan extends the VA home loan benefit to new construction. For eligible Veterans, active-duty service members, and surviving spouses, the VA loan program offers $0 down payment and no private mortgage insurance - features of the VA program, not lender benefits.

Your Certificate of Eligibility (COE) applies. The builder must be vetted and approved by the lender in accordance with VA guidelines - builder approval is now a lender requirement, not a VA-direct approval. The home must still meet VA Minimum Property Requirements.

Verify your builder's lender approval status early, before you're locked into a contract.

USDA OTC loans are backed by the U.S. Department of Agriculture for buyers building in eligible rural areas. For qualified, eligible borrowers, the USDA program offers $0 down payment. Income limits apply and vary by household size and location.

USDA loans carry an upfront guarantee fee of 1% of the loan amount and an annual fee of 0.35% of the outstanding balance, similar in structure to FHA mortgage insurance.

"Rural" is broader than most buyers assume - many suburban zip codes qualify. Check property eligibility on the USDA's website before assuming your area doesn't qualify.

Conventional OTC loans aren't government-backed. Down payments typically range from 5-20% - many lenders require 10% or more specifically for new construction. Credit requirements vary by lender; confirm with your loan officer.

No geographic restrictions, no income limits, and mortgage insurance falls away once you reach 20% equity. More flexibility on property type. One thing to confirm upfront: some conventional OTC programs re-verify income, employment, and credit at conversion. Ask your lender whether this applies to your loan before you sign.

Checking out this Comprehensive Guide to Conventional Loans, can help you figure out if it's right for you

1. Pre-approval: You apply and get underwritten based on credit, income, assets, and the projected value of the completed home, appraised from plans and specs before construction begins.

2. Builder approval: Your lender reviews and approves your builder. For VA and FHA loans, the builder must meet program-specific lender requirements. Start this early - builder approval can surface late if you wait until you're under contract.

3. Construction package review: Your lender reviews the build plans, budget, and full project scope. The completed home is appraised based on its projected after-completion value before construction begins. This step determines your maximum loan amount.

4. Closing: The loan closes before construction starts. Your rate locks here.

5. Construction draws: Funds are disbursed to your builder in stages as work is completed and inspected. You pay interest only on the amount disbursed, not the full loan balance.

6. Conversion: When construction is complete and the final inspection clears, your loan converts automatically to your permanent mortgage at the rate locked at closing.

reAlpha Mortgage lenders allow up to 11 months and 30 days for construction. The full timeline - application to move-in - typically runs 12 months or more depending on the complexity of your build.

"With one-time close loans, the biggest piece most buyers don't realize is how much of the work happens before construction even starts. We're not just approving the borrower - we're reviewing the builder, the plans, the budget, and the full scope of the project upfront. When that's done right, the build process is smooth. When it's not, that's where delays and surprises show up."

- Jessica Wells, Loan Originator, reAlpha Mortgage

For most buyers building a home, a one-time close is the cleaner choice. You pay closing costs once, go through underwriting once, and your rate is protected for the full length of the build.

Closing costs typically run 2-5% of the loan amount. On a $350,000 loan, a second closing adds $7,000-$17,500 to your total cost, before factoring in any rate movement during construction. For buyers who qualify today and have a builder under contract, that math nearly always favors OTC.

Two-close makes sense in specific scenarios: if your credit or income is likely to improve significantly before you need to qualify for the permanent mortgage, or if your property or builder doesn't meet OTC program requirements. In those cases, qualifying for a permanent mortgage at the end may outweigh the added cost.

The OTC structure has moved from niche to mainstream. According to the NAHB, 37% of single-family home builders used construction-to-permanent financing in Q3 2025. Construction-only loans have declined from 31% of builder financing in 2020 to 23% by mid-2025.

OTC loans tend to work best for buyers with a specific build plan and a timeline longer than a few months.

• Eligible Veterans and service members who can use the VA program to eliminate down payment and mortgage insurance.

• Buyers in USDA-eligible areas who qualify for $0 down.

• Buyers locked into a builder contract spanning up to 11 months and 30 days who want rate certainty from day one.

One scenario worth thinking through separately: production builders often offer closing cost credits, rate buydowns, or upgrade allowances exclusively if you use their preferred lender. Those incentives are real. The question is whether they outweigh the benefit of shopping your loan across multiple lenders. That comparison is worth running before you commit to either path.

Know which program lane you're likely in before your first lender conversation. Check your credit score. Estimate your down payment. Verify VA eligibility if you've served. Check USDA property and income eligibility if you're building outside a major metro.

If you have a builder in mind, verify their eligibility for your loan type before you're fully committed. Builder approval requirements for VA and FHA loans can disrupt the process if caught late.

OTC pre-approval is more involved than a standard purchase mortgage - you'll need income documentation, tax returns, and preliminary builder and plans information. reAlpha Mortgage is a mortgage brokerage licensed in 31+ states, with access to a network of 100+ lenders across all four OTC loan types. We shop our lender network to find the right loan for your situation.

Not sure which OTC loan fits your build? (Talk to a reAlpha Mortgage loan officer)

• NAHB AD&C Financing Survey

• Does FHA require a minimum credit score?

• HUD.gov

• FHA Single Family Housing Policy Handbook 4000.1

• VA Purchase Loan

• VA.gov

• VA Funding Fee and Closing Costs

• USDA Single Family Housing Guaranteed Loan Program

• rd.usda.gov

• USDA Upfront Guarantee Fee & Annual Fee