One-Time Close Construction Loan 2026: How It Differs from Two-Close and When to Use It

A one-time close (OTC) construction loan uses a single application, single appraisal, single closing, and single set of closing costs to cover both the construction phase and the permanent mortgage. The borrower locks the permanent rate at the initial closing. When the certificate of occupancy is issued, the loan converts to the permanent mortgage automatically.

OTC vs. Two-Close Construction Loans

A two-close structure requires two separate closings: one to fund construction, and a second to originate the permanent mortgage when the home is complete. Two closes mean two sets of closing costs, two appraisals, and no guarantee on the permanent rate until closing number two. If rates move during construction, the borrower absorbs the change. OTC locks that risk out.

FHA and VA OTC Programs

FHA offers a one-time close construction loan under 24 CFR 203.44 and 203.50. Minimum 3.5% down, 580 FICO for maximum financing. The builder must be FHA-approved. VA offers a VA OTC for eligible veterans at 0% down on the permanent portion. No VA funding fee on construction draws, only on the permanent conversion. USDA also offers OTC through approved lenders in rural designated areas.

• ✦FHA OTC: 580+ FICO, 3.5% down, FHA-approved builder required
• ✦VA OTC: eligible veteran, 0% down, VA-registered builder
• ✦Conventional OTC: available through specific investors, typically 5% to 10% down, 680+ FICO
• ✦Fannie Mae does not directly purchase OTC construction loans; they are typically portfolio products until conversion

Rate Lock Duration

The rate is locked at initial closing for the construction period plus the permanent term. Standard construction periods are 6 to 12 months. Lenders offering OTC programs build the construction period into the lock. Extended locks cost more, so borrowers with shorter build timelines benefit more. If the builder misses the completion deadline, the lender may charge lock extension fees.