HOW THE ONE TIME
CLOSE WORKS
One closing. One rate lock. Then you build.
WHAT βONE TIME CLOSEβ REALLY MEANS
With a VA One Time Close construction loan, you close on both the construction financing and the permanent mortgage at the same time β before construction starts.
One Closing
One set of documents signed upfront.
One Set of Costs
Closing costs paid one time.
Terms Set Upfront
Rate and payment locked now.
Automatic Conversion
No second closing required.
CLOSING BEFORE CONSTRUCTION STARTS
You close on the loan before your builder breaks ground. At closing, the lender establishes an escrow account to hold the construction funds.
If youβre buying land as part of the loan, those funds are disbursed at closing to pay for the land. The remaining balance stays in escrow and is released to your builder in draws as construction progresses.
You start making payments during constructionβtypically interest-only on the funds that have been drawn. Once the home is complete and the loan converts, you switch to regular principal and interest payments.
Choose Your Lock Window
A 9-month lock is often the sweet spot: it gives you rate certainty while leaving room for delays. Add buffer now to avoid paying for extensions later.
Closing
RATE LOCK STRATEGY
One of the biggest advantages of a one-time close is locking your permanent rate before construction starts. You know exactly what your rate and payment will be, regardless of what happens in the market while you're building.
However, rate locks have time limits. Most lenders offer extended locks for construction loans β typically 6β12 months. If construction takes longer, you may need to pay for an extension or accept a new rate.
Work with your lender to choose a lock period that matches your realistic construction timeline β plus a buffer for delays. Be honest about how long the build will take. Rushed timelines cause problems.
WHAT YOU SIGN AT CLOSING
Click each document to see what it does and why it matters. This keeps your closing package clear and easy to review.
Closing Packet
Closing Disclosure
Shows your final loan amount, interest rate, monthly payment, closing costs, and cash to close. Review this carefully β itβs your final terms.
CLOSING COSTS
Closing costs for a VA construction loan include: VA funding fee (typically 2.15% for first-time use, 3.3% for subsequent use β can be financed), appraisal fee, title insurance, recording fees, lender fees, and prepaid items like property taxes and insurance.
The VA limits what lenders can charge. You cannot be charged for certain fees that are common with conventional loans. The seller (if buying land from a seller) can pay up to 4% of the loan amount toward your closing costs.
What Can Be Financed
- VA Funding Fee
- Included in total loan amount if desired
Typically Paid at Closing
- Appraisal fee
- Title & recording fees
- Lender fees
- Prepaid taxes & insurance
ESCROW SETUP FOR CONSTRUCTION
At closing, the lender sets up an escrow account to hold the construction funds. This account is separate from your regular mortgage escrow for taxes and insurance.
The construction escrow holds the funds that will be disbursed to your builder in draws. The lender controls these funds and releases them only after inspections confirm that work has been completed according to the plans.
You donβt have direct access to these funds. Your builder requests draws, the lender inspects, you approve the draw in writing, and then the lender disburses funds.
This protects you from paying for work that hasnβt been completed.
INTEREST-ONLY PAYMENTS DURING CONSTRUCTION
During construction, you make interest-only payments on the funds that have been drawn from the escrow account. If $100,000 has been drawn, you pay interest on $100,000. As more draws happen, your interest payment increases.
These payments are typically due monthly. Theyβre lower than your eventual principal and interest payment, which helps if youβre still paying rent or another mortgage during the build.
Once construction is complete and the loan converts to permanent financing, you switch to regular principal and interest payments based on your locked rate and loan amount.
Your payment is based on the amount actually drawn from escrow β not the full loan amount.
Payments are usually monthly during construction and increase as draws increase.
After completion, you switch to principal + interest on the permanent mortgage.
Payment changes as draws increase
CONVERSION TO PERMANENT LOAN
After construction is complete, the VA appraiser conducts a final inspection to verify the home was built according to the approved plans and meets VA Minimum Property Requirements.
Once you receive your Certificate of Occupancy and the final inspection is approved, the lender processes the conversion. Your loan automatically converts from construction to permanent financing.
You then begin regular principal and interest payments based on the rate and terms locked at your original closing.
- βNo second closing
- βNo new documents to sign
- βNo second appraisal
- βNo re-qualifying
- βRate and terms stay exactly as locked
OTC VS TWO-TIME CLOSE: THE DIFFERENCE
OTC VS TWO-TIME CLOSE: THE DIFFERENCE
ONE TIME CLOSE
ONE TIME CLOSE
- Close once before construction
- One set of closing costs
- Rate locked upfront
- Automatic conversion
- No re-qualifying
- Lower total costs
TWO-TIME CLOSE
TWO-TIME CLOSE
- Close twice (construction + permanent)
- Two sets of closing costs
- Rate uncertainty until second close
- Must re-qualify for permanent
- Second appraisal required
- Higher total costs