Transcript
So you want to build a house from the ground up, but every lender you talk to makes the process sound like a nightmare. Two separate closings, two sets of closing costs, two credit pulls, and somehow you have to qualify twice. The question you're probably asking yourself is, is there a way to do this without all the headache? There is, and it's called a one-time close construction loan. One approval, one set of closing costs, one loan. In this video, I'm going to walk you through the entire one-time close process step-by-step so you can know exactly what to expect, what the requirements are, and how to avoid the mistakes that kill most construction loan deals before they ever close. And if you're a veteran, stay until the end because the VA version of this loan is one of the most powerful benefits most veterans never use. All right, so here is what most people do not realize about building a home. When you build a home, you typically need two types of financing. First, you need a construction loan. This is the short-term loan that funds the actual building of the house. The builder gets paid from the loan in stages as the home goes up, and these payments are called draws. Second, once the house is done, you need a permanent mortgage. This is your regular 30-year fixed or whatever term you choose that replaces the construction loan. Now, traditionally, these are two completely separate loans, two applications, two approvals, two closings, two sets of closing costs, but here is the risk most people overlook. your credit score drops between the construction closing and the permanent closing? What if interest rates go up? What if your income situation changes? With a two-time close, you are rolling the dice on all of that. A one-time close eliminates all of this. You apply one time, you close once, and once construction is finished, your loan automatically converts into your permanent mortgage. Same rate, same terms, everything is locked in from day one. Most people think building a home is this overwhelming chaotic process with a hundred steps. It turns out with the one-time close, you could achieve this in seven simple stages. Now, I get this question all the time. Where do I start? And this is exactly where you begin. Stage number one, pre-approval. This is where you talk to a lender, someone like me, and we figure out what you actually qualify for. We look at your income, your credit, your debts, we determine your budget. This is also where we identify which one-time close program fits your situation, because there are real differences between VA, FHA, and conventional loan options. Stage number two is going to be finding your builder. This is where most deals go sideways. Not every builder is set up to work with one-time close loans. Your builder needs to be registered or approved by the lender. They need the right insurance, the right licensing, and they need to be comfortable with the draw process. The wrong builder will stall your entire project, and I'm going to do a whole separate video on how to find the right builder, but just so you know, this is the step that matters just as much as getting pre-approved. Stage number three is locking down your land. You cannot build a house without a piece of dirt to put it on. If you do not already own land, you need to find a lot and get it under contract. The good news is that with the one-time close, the land purchase gets rolled into the loan. You're not taking out a separate land loan and then a construction loan on top of it. It is all in one transaction. Now, if you already own land, you can skip this step entirely. Your existing equity in the lot counts towards your investment in the project, which means less money out of pocket at closing. Stage number four is the plans and specs. Once you have a builder and a piece of land, you need to finalize construction plans, any detailed spec sheet. The lender and the appraiser need to know exactly what is being built, square footage, materials, finishes, everything. The more detailed your plans are, the smoother everything goes from here. Stage five is the blueprint appraisal. Here is where it gets interesting. The appraiser is going to value the home based on the plans, not on a finished product. They look at comparable sales in the area and estimate what the home will be worth once it is completed. This is technically called a subject to completion appraisal. Once that appraisal comes in at or above your construction costs plus the land, you are in good shape. Step number six is the one and only closing. You sign one set of loan docs. The construction financing is set, and your permanent rate and terms are locked in. After closing, the builder starts pulling draws to be able to begin building your home. No second closing hanging over your head. And stage number seven is the build and the flip. During construction, the lender sends an inspector out at each draw stage to verify the work is done before releasing funds to the builder for the next draw. You typically only pay interest on the amount that has been drawn during this phase. Once the home is 100% completed and passes final inspection, the loan automatically flips into your permanent mortgage, and your regular principal and interest payments begin. No second closing, no re-qualifying, nothing. Now, the question you're definitely thinking is, what am I actually paying while the house is being built? During the construction phase, you are not making a full mortgage payment. Instead, you are making what's called interest-only payments based on the amount that has been dispersed to the builder so far. I call this the climbing payment. Here is what this looks like in real numbers. Say your total loan is $400,000 and your rate is 6.5%. In one month, the builder draws $60,000 for the foundation. Your interest-only payment that month is based on the $60,000, not on $400,000. That comes out to roughly $325 per month. By month six, say $250,000 has been drawn. Now, your payment has climbed to around $1,354. It scales up as more money goes out. But here is the part most people do not know about. Some programs offer what is called interest reserve. This means the interest payments during construction are built into the loan itself. So you're not making any payments out of pocket during the build, which means zero payments while your house is going up. Once construction is complete and the loan flips, you start making your full principal and interest payment just like any other mortgage. If you watched this far into the video, first of all, I want to thank you. I hope you are getting value out of this, and if you want to keep getting information like this, please subscribe to the channel. Now, here is something I want to be real with you about. A lot of you watch my videos, learn from them, and then go and get your loan through a big online lender or bank. And I get it. Those companies spend millions of dollars on advertising. But here is what they do not do. They do not make videos like this. They do not educate you. And most importantly, they do not list their actual cell phone number for you to call or text when you are stressed about your closing. I have nearly 10 years of mortgage experience and a network of over 25,000 real estate agents nationwide. That means I'm not just doing your loan, I'm helping you find the right agent, negotiate the right deal, and guide you through the entire process from start to finish, regardless of where you're located geographically. The big companies only give you a 1-800 number. I give you my team's direct line. And if you want the kind of experience, the link is in the description, and I'd be happy to help you. Now, let's get back to the video. Now, let me show you exactly why the one-time close is almost always the smarter move. With a two-time close, you close on the construction loan, the house gets built, and then you have to re-qualify and close again on the permanent mortgage. That sounds manageable, but here is what actually happens. Your credit gets pulled again. If rates went up during the build, you are stuck with higher rates. If your job situation changed, you might not even qualify anymore. And you are paying closing costs twice. I have seen people lose their homes over this, not because they could not afford them, but because they could not re-qualify after the build. With a one-time close, your rate is locked in before construction even starts. You only pay closing costs once, and you only qualify once. The risk of not qualifying for the permanent loan is gone because it is already done. Now, the one thing people bring up is that one-time close rates can sometimes be slightly higher than what you would get on a standard purchase loan. That is true, but once you factor in the savings from one set of closing costs and the elimination of rate risk, it's almost always you come out ahead, and you can always refinance down the road when rates drop. On top of that, you also have what's called a float-down option, which is where, when your home is completed, the lender will float your rate down to the market rate if it has improved since the construction loan closed. Remember, the loan closes up front. So if you close up front with a rate of, let's say, 7.5%, but at the time of completion, the market rate is near 5.5%, you get to float down to that new lower rate completely free. But if rates went up from the time that your construction started, you keep the rate that you locked in at, giving you the more secure rate up front. Okay, now for veterans, what I'm about to tell you is something 90% of loan officers either don't know or will not tell you. If you have VA loan eligibility, the VA one-time close construction loan changes everything about how you build a home, and here's why. Zero down payment. You can build a brand new custom home with zero money down. Think about that for a second. Most construction loans require 10, 15, or even 20% down. With VA, it is zero. This is tens of thousands of dollars you keep in your pocket. The next reason is no private mortgage insurance. Even with zero down, the VA does not require private mortgage insurance. That saves you hundreds of dollars a month compared to a conventional or FHA construction loan. The next is going to be best rates on the market. VA consistently carry some of the lowest interest rates available, and that applies to construction loans, too. Now, there are a few things to know. You will pay the VA funding fee, which can be rolled into your loan. If you're collecting VA compensation of a 10% rating or more, the funding fee is waived entirely. That is thousands of dollars that just disappear from your overall loan amount. Your builder still needs to be approved, and the property has to meet VA minimum property requirements once construction is complete. The VA also has specific rules about the construction timeline and the inspections. But bottom line, if you are a veteran with eligibility, building a home with a VA one-time close is one of the most underutilized benefits in existence. Most veterans do not know this, and this is a real option. Now, I also put together a free guide called Build Your Dream Home. It is a complete walk-through of VA, FHA, and conventional one-time close loans. The draw process, builder requirements, a full checklist, everything. The link is down below in the description for you to download completely free. Before I wrap up, let me give you what I call the construction loan checklist. These are the baseline requirements you need to understand. First is credit score. On conventional, you're going to need at least about a 680, where on FHA, you can get away with about 620, and then on VA, you can get away with as low as 580. When it comes to down payment, conventional is going to require at least 5% down, where FHA will require 3 and 1/2% down, and VA is zero down. When it comes to builder approval, your builder must be licensed, insured, and registered with the lender. This is non-negotiable. The wrong builder is the number one reason I see construction loan deals fall apart. The next thing is going to be your land. As I covered in stage three, you can buy land as part of the loan or use existing equity in land that you already own. Either way, the lot needs to be identified before you move forward with the loan itself, which comes after you have been pre-approved and also after your builder has been approved. You do not need to have land secured before getting pre-approved, and I actually recommend that you don't get it secured because you want to make sure you at least qualify before doing so. When it comes to the construction timeline, most programs will allow up to 12 months at the absolute most. Once your build goes over that window, it creates real problems. So, having a realistic timeline locked in with your builder up front is going to be critical. And there you have it. That's how the one-time close construction loan works. Here's what I want you to take away from this video. Building a home does not have to be complicated. The process is straightforward once you have the right lender and the right builder in your corner. Now, this is just the first video of a full series I'm doing on construction loans. Coming up next, I am breaking down how to find a builder who will actually work with a one-time close, what it really costs to build a home, and the five mistakes that destroy construction loan deals before they ever fund. So, hit subscribe. Do not miss this because this is going to help you be able to build your dream home in the near future. The last thing I want to leave you with is always the most important thing on this channel, and that is Jesus loves you, and he paid the ultimate price for your life. So, if you turn to him, trust in him, and believe in him, he has a beautiful plan and purpose for you. I'll see you in the next one.