One-Time vs. Two-Time Close Construction Loans: Myths, Benefits, and Best Strategies

Building a new home is exciting—but choosing the right construction loan can feel overwhelming. Many buyers don’t realize how accessible today’s one-time close construction loans and two-time close construction loans really are. By understanding the differences, avoiding common myths, and applying the right strategy, you can build your dream home with confidence.

**Myth #1: “I’ll have two mortgage payments during construction.”

The Truth: This is avoidable with an interest reserve account, which is available on most construction mortgage programs. Instead of making monthly out-of-pocket payments during the build, the interest is built into the loan and drawn automatically. This structure prevents you from having “double mortgage payments” while your new home is under construction.

**Myth #2: “I can’t qualify with two house payments.”

The Truth: This issue is eliminated with our Two-Time Close construction loan, which allows us to omit the payment on your current residence if it will be sold before your new home is complete. If you plan to keep your current home as a rental, our program also allows us to use the projected rental income to help you qualify. This feature ensures you can move forward with construction even before selling or repositioning your current property.

**Myth #3: “I will need to move twice.”

The Truth: Many families assume they must sell their current home to fund the down payment on their new build, forcing them into temporary housing and two moves. This is not necessary. With cross-collateralization, you can retain your current home and leverage its equity as the down payment on the new construction loan. This often allows families to start construction with little to no cash out of pocket—and move directly from their old home into their new one without the stress of moving twice.

**Myth #4: “I don’t have enough money for a down payment.”

The Truth: Little-to-no down payment programs are available across multiple loan types: VA offers up to 100% financing, FHA requires as little as 3.5% down, and conventional loans can start at just 5%. Even in jumbo scenarios, cross-collateralization can eliminate the need for upfront cash if you have enough equity in your current home.

**Myth #5: “I’ll have to pay closing costs twice.”

The Truth: With a One-Time Close construction loan, there is only one set of closing costs. With a Two-Time Close, the only duplicated expense is title-related fees, generally just a few thousand dollars. In exchange, you gain the ability to shop dozens of lenders for the permanent loan, something very few OTC lenders allow. This means the Two-Time Close often delivers a stronger long-term mortgage outcome, making the small duplicate cost well worth it.

One-Time Close vs. Two-Time Close: What You Need to Know

One-Time Close (OTC):

• A single closing covers both the construction loan and the permanent mortgage.

• Long-term rate is locked upfront, with a float-down option if rates improve within 30 days of completion.

• Best for borrowers who can qualify without selling their current home and want certainty from the very beginning.

Two-Time Close (TTC):

• Two closings: one for construction, one for the permanent loan.

• Key advantages:

• Qualify without selling your current home.

• Use your existing home’s equity in place of cash for the down payment.

• Flexibility to secure the permanent loan at completion, with the ability to shop dozens of banks for the best deal.

• Access to extended rate locks of up to 365 days.

• Despite misconceptions, the up-front process is not more complex than an OTC. In many cases, it’s equally straightforward while offering significantly more flexibility.

Strategic Advantages Buyers Rarely Hear About

• Soft Equity Growth: Homes often appraise for more once complete than the original contract price. This “soft equity” is created during construction and strengthens your financial position before you even move in.

• Rate Lock Strategy: With OTC, you lock your permanent rate upfront with a float-down option. With TTC, you can hedge with long-term locks or wait to capture better rates later. The right strategy depends on market conditions and your goals.

• Liquidity Preservation: By using cross-collateralization or low-down-payment programs, you can preserve cash for emergencies, investments, or future opportunities—exactly the type of strategy Holistic Mortgage Planning is designed to support.

When to Choose Which

Choose a One-Time Close Construction Loan if:

• You can qualify without selling your current home.

• You prefer the simplicity of one closing.

• You want to lock your long-term rate upfront and avoid market uncertainty.

Choose a Two-Time Close Construction Loan if:

• You need to qualify before selling your current home.

• You want to use your current home’s equity instead of cash for the down payment.

• You value the flexibility of securing your permanent loan later—and shopping for the best deal.

• You want access to extended rate lock options.

Frequently Asked Questions About Construction Loans

Q: How does a one-time close construction loan work?
A one-time close combines the construction loan and permanent mortgage into a single closing. You lock your rate upfront (with a float-down option if rates improve before completion) and only close once.

Q: What is the difference between a two-time close construction loan and a one-time close?
A two-time close requires two closings—one for construction, one for the permanent loan. The advantage is flexibility: you can use equity from your current home as your down payment, qualify without selling, and shop dozens of lenders for the best long-term rate.

Q: Which is better, one-time close or two-time close?
It depends on your situation. If you want simplicity and know you can qualify without selling, one-time close works well. If you need flexibility, want to leverage equity, or want the best permanent rate shopping options, a two-time close is often superior.

The Bottom Line

Construction financing doesn’t have to be complicated. With the right loan structure and the right loan team, you can:

• Avoid double payments during construction.

• Qualify without selling your current home.

• Use equity instead of cash for the down payment.

• Lock in a rate strategy that fits your goals.

We are construction loan experts, and when these programs are paired with our Holistic Mortgage Planning strategies, the options are abundant—and often shockingly accessible.

👉 Don’t assume you can’t build before talking with us. With the right strategy, your dream home may be closer than you think.