When it comes to financing a new home construction project, there are several options available. Two of the most common options are construction-to-permanent and one-time close (OTC) construction loans. While both loans can help homeowners realize their dream of building a custom home, it’s important to understand the key differences between the two before deciding which one to pursue.
Construction-to-permanent loans are essentially two loans in one. The first loan is taken out to cover the costs of the construction process, and the second loan is taken out once construction is completed to cover the permanent financing of the home. This means there are two sets of closing costs and two separate loan approvals.
One-Time Close Construction Loans
OTC construction loans, on the other hand, are designed to cover the construction process and the permanent financing of the home in one loan. This
means there is only one set of closing costs, and the homeowner needs to be preapproved only once, in the beginning.
Which Loan Is Right for You?
When deciding between construction-to-permanent and OTC construction loans, it’s important to consider your individual needs. If you’re looking for more flexibility in terms of interest rates and loan terms, a construction-to-permanent loan may be the better option. However, if you value simplicity and predictability, an OTC construction loan may be the better choice.
If you’re planning a residential construction project that will last up to 12 months, an OTC construction loan may be the more practical option, especially in a high interest rate environment. Alternatively, if you’re planning a larger-scale project that will take a year or more to complete, construction-to-permanent may be the better choice, as it can provide more flexibility.
Both loan types can be great options. Ultimately, it’s important to weigh the pros and cons of each option and make an informed decision that will help you achieve your dream of building a custom home.
– Chris Johnson started his mortgage career in 2004. He’s been a Canton resident since 2020. As CEO of Sunshine Mortgage, he’s always willing to provide unbiased mortgage advice. 678-952-9020.