One-Time Close Construction Loans provide a streamlined way to finance both the construction of a new home and the permanent mortgage in a single loan. Instead of managing separate construction and permanent financing, this structure allows borrowers to close once, lock in an interest rate upfront, and convert automatically to a traditional mortgage after construction is complete. One-Time Close Construction Loans are ideal for custom homes, rural properties, luxury builds, and borrowers seeking simplicity, cost savings, and long-term predictability. Whether you’re building a primary residence, second home, or high-value property, this loan structure removes unnecessary complexity from the construction financing process.
A one-time close construction loan finances your lot, your build, and your permanent mortgage in a single closing. You sign once, before ground breaks, and the loan converts to permanent financing when the house is finished — with no second application and no requalification. Most articles about this product stop at that sentence. The parts that actually determine whether your build goes smoothly are the draw schedule, the subject-to-completion appraisal, and who funds a change order, so that's what this page covers.
Key takeaways
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A one-time close construction loan is a single mortgage that funds land acquisition, construction, and permanent financing under one closing. It is also called a single-close loan or a construction-to-permanent loan. The alternative — a two-time close — treats construction and the permanent mortgage as two separate transactions with two closings, two sets of documents, and two credit approvals.
The difference sounds administrative. It isn't. Under a two-time close, you have to qualify a second time once the house is built, using whatever your income, credit, and the rate environment look like at that point. If anything has moved against you during a twelve-month build, that's your problem to solve while standing in a finished house you can't yet finance.
One-time close construction loan — a mortgage that funds the lot, the construction period, and the permanent loan in a single closing, converting automatically to permanent financing at completion without a second application or requalification. Also called single-close or construction-to-permanent financing. Subject to credit approval; eligibility requirements apply.
| Structure | One-time close | Two-time close |
|---|---|---|
| Number of closings | One, before construction begins | Two — construction, then permanent |
| Requalification at completion | None | Full requalification required |
| Rate certainty | Terms set at the original closing | Permanent terms set after the build |
| Closing costs | One set | Two sets |
| Payments during construction | Typically interest-only on funds drawn | Typically interest-only on funds drawn |
| Main advantage | Certainty — your approval can't disappear mid-build | Flexibility — you can shop the permanent loan later |
| Main risk | You're committed to the terms you signed | You may not qualify when the house is finished |
General structural comparison for educational purposes. Program availability, terms, and eligibility vary by lender, property type, and state, and are subject to change. All loans subject to credit approval.
Construction funds are released in stages called draws, each one triggered by verified completion of a defined phase rather than by a date on a calendar. You are not handed the full loan amount at closing, and your builder is not paid in advance.
The sequence on a typical custom build runs roughly like this:
Each draw request triggers an inspection to verify percentage of completion, and lien waivers are collected from subcontractors so the title stays clean. You pay interest only on the balance actually disbursed, which is why the payment in month two is much smaller than the payment in month ten.
The practical implication most borrowers miss: your builder must be able to carry costs between draws. A thinly capitalized builder who needs money before a phase is verifiably complete will create friction on your project. That's a real reason to care who you hire, separate from the quality of their work.
Your construction loan is underwritten against a subject-to-completion appraisal — a valuation of a home that hasn't been built, based on your plans, specifications, and finish schedule compared against completed comparable sales. This is the single most common place a construction file runs into trouble, and almost nobody warns you about it in advance.
The appraiser is answering one question: if this house were finished today exactly as drawn, what would it be worth? If that number comes in below your total project cost, you have a gap, and the gap is generally yours to cover in cash. Three situations produce it most often:
The way to manage this is to have the plans, specifications, and builder's contract reviewed before you commit — not after you've signed with a builder and put money down. That review costs nothing and it is the highest-value hour in the entire process.
A contingency reserve is money built into your project budget at closing to absorb cost increases during the build. It is not optional padding — it is a structural part of how construction loans are sized, and a project budgeted with no contingency is a project that will need cash from you the first time something moves.
Things do move. Material prices change between contract and framing, a soils report comes back requiring engineering nobody anticipated, or you decide midway that you want a different kitchen. How those get funded depends on what the change is:
The contract type matters here too. A fixed-price contract puts overrun risk largely on your builder. A cost-plus contract puts it largely on you. Neither is automatically wrong, but you should know which one you signed before the first change order arrives.
At completion, the loan converts from a construction facility to a permanent mortgage through a modification — not a refinance. That distinction is the entire point of the product, and it's the part that saves you the most trouble.
A refinance would mean a new application, a new credit pull, new income documentation, new title work, and a new set of closing costs. A modification means the loan you already closed changes character according to terms that were set at the original closing. You provide the certificate of occupancy and the final inspection; the interest-only construction period ends; principal and interest payments begin.
Three things worth confirming before you close on any construction loan, because they vary by program:
Construction financing crosses into jumbo territory at the conforming loan limit, and in Arizona that number is the same in every county. The FHFA 2026 conforming loan limit for a one-unit property is $832,750, with a national high-cost ceiling of $1,249,125. Arizona has no high-cost county — Maricopa, Pima, and Coconino all use the baseline figure.
That threshold arrives quickly on a custom build. A Paradise Valley or north Scottsdale lot plus a custom construction budget clears $832,750 without much effort, which puts the project into jumbo or super-jumbo territory and changes the underwriting posture — reserve requirements rise, documentation gets deeper, and the appraisal review is more rigorous. Portfolio jumbo construction is the work I do most, and it's the reason lot buyers in the Valley's custom corridors tend to end up on my calendar.
Below that threshold, a conventional one-time close generally applies and follows agency-adjacent underwriting. The structure of the build is identical either way; what changes is the depth of the file.
Your builder is underwritten alongside you. Lenders review the building entity, not just the borrower, because the bank is funding a project it can't foreclose on in an unfinished state without a serious problem. Builder approval is a distinct step and it can delay a closing if it starts late.
What generally gets reviewed:
Most lenders do not permit owner-builder arrangements, self-build, or a family member acting as general contractor. If that's your plan, confirm it before you go far down the road — it disqualifies a project from most construction programs outright.
My advice, from twenty years of these files: start builder approval the week you pick your builder, not the week you want to close. It is the step most likely to be sitting on someone else's desk when everything else is ready.
I originate one-time close construction financing across Arizona and in the states where I'm licensed. My office is in Scottsdale; outside the Phoenix metro I work with borrowers remotely and rely on local builder and appraisal relationships.
A one-time close construction loan is a single mortgage that finances the lot, the construction period, and the permanent mortgage under one closing. It converts to permanent financing at completion without a second application, a second credit approval, or a second set of closing costs. It's also called a single-close or construction-to-permanent loan.
The two-time close treats construction and the permanent mortgage as separate transactions, which means you must qualify again after the house is built. If your income, credit, or the rate environment has changed during the build, that requalification is a real risk. A one-time close removes it by setting your terms once, before construction begins.
Yes, typically interest-only on the funds that have actually been disbursed rather than on the full loan amount. Because money releases in draws tied to verified completion, your payment grows as the build progresses. Full principal and interest payments begin after the loan converts to permanent financing. Terms vary by program.
Generally no. Most construction lending programs require a licensed, approved third-party builder and do not permit owner-builder, self-build, or a family member serving as general contractor. If that's your intention, confirm program eligibility before you buy a lot, because it rules out most construction financing.
The shortfall is generally yours to cover in cash. Your loan is sized against a subject-to-completion appraisal based on plans and specifications, and if total project cost exceeds that valuation, the lender does not simply lend the difference. This is why having plans, specs, and the builder's contract reviewed before you sign is worth the time.
Yes. In Arizona, a construction loan becomes jumbo above the 2026 conforming limit of $832,750, which applies in every Arizona county. Jumbo construction financing follows the same structural process — single closing, draws, conversion at completion — with deeper documentation and higher reserve requirements. Portfolio jumbo construction is my primary specialty. Eligibility requirements apply and all loans are subject to credit approval.
Construction periods are defined in your loan documents and vary by program and project scope. What matters more than the headline number is what happens if you exceed it — weather delays, permitting, and supply issues are common enough that you should understand the extension process before you close rather than discovering it in month eleven.
The cheapest hour in a construction project is the one spent reviewing plans, specifications, and the builder's contract before anything is committed. I'll tell you where the appraisal is likely to land, whether the budget carries enough contingency, and what your builder will need to clear approval. No cost, and you'll get it in writing.
Call or text (480) 221-3781
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Ryan Lehrman, Senior Mortgage Banker — BMO Bank N.A.
NMLS #235295
6710 N Scottsdale Rd, Ste 100, Scottsdale, AZ 85253
Ryan Lehrman, NMLS #235295. BMO Bank N.A., NMLS #401052. Member FDIC. Equal Housing Lender. All loans subject to credit approval. Terms, conditions, and eligibility requirements vary by program, property type, and state and are subject to change. This is not a commitment to lend. Rates and figures shown are for illustration only and are not an offer of credit. Content on this page is educational and is not individual financial advice; please discuss your specific situation with a licensed mortgage professional. License information is verifiable at nmlsconsumeraccess.org.
