When it comes to building a new house floor plan, or customizing a building project, landowners and homeowners have two financing alternatives: the one-time closing loan and a construction-only loan.  The one time closing loan finances both the build and the home loan–whereas the construction loan is for architecting the house plan.

With the one-time closing loan or the “all-in-one construction loan,” it  eliminates the extra step  process of shopping around for a mortgage or home loan. Most borrowers opt for the one time construction loan to have one closing, ultimately reducing closing costs. Prior to opting for the one-time closing loan, make sure that the lender will not require interest payments while the home is under construction.

To calculate the cost of building a new house floor plan, House Plans and More.com has an easy to use House Design Estimating software, click on house plan estimation to calculate the cost of a construction loan and review the download details. 

Upon the house floor plan’s completion, the construction loan transitions into a long-term home loan.

In general, construction loans range in duration from six months to a year, requiring a “draw schedule.” The draw schedule acts as an outline of when specific tasks are to be completed, and the corroborating terms of releasing funds to the builder.

A construction-only loan is a two part financing process. The first closing begins with the construction. A second closing is necessary to refinance the construction loan, transitioning the mortgage into a permanent home loan.

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Although the one-time closing loan saves on closing fees, it inhibits the borrower from shopping around for a home mortgage with a lower interest rate.

On the contrary, the construction loan tends to incur upfront costs, offering more flexibility and an opportunity to recuperate the savings over the mortgage loan.

Read more about obtaining a construction loan to build a new house plan.

Why is a construction loan necessary?
As building a home incurs a cornucopia of costs, homebuilders cannot afford to defer the expenses, correlated to building material, equipment and labor.  With a construction loan, the homeowner or borrower can pay for construction costs over the duration of completion.

Is a construction loan the same as a mortgage?
No, a construction loan ranges between six and to 12 months or for the duration of the construction. A separate home loan is needed once the home is built.

Are there any loans that cover the cost of building and financing my home?
Yes, these are known as “all-in-one construction loans.” They cover both the cost of building and maintaining the mortgage.

Is the construction loan less expensive than the all-in-one construction loan?
Actually, construction loans or two-time close construction loans tend to be more expensive than the all-in-one construction loan. Since two-time close construction loans call for several closings, one at the start and conclusion for refinancing the loan into a permanent home loan or mortgage, it accompanies a variation of costs.

Are there any advantages or drawbacks to the all-in-one construction loans?
The all-in-one construction loan is lauded for its convenience, meaning that it reduces overall closing costs. On the other hand, depending on the current interest rate, the all-in-one loan hinders a homeowner from shopping around for a better rate or loan.

If I select the all in one construction loan, do I have to pay interest during the home-build?

From lender-to-lender, the interest responsibility varies. The best all in one construction loan does not have an interest rate.

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An Introduction to New Home Construction Loans

Getting A Construction Loan Vs A Mortgage Loan

How Construction Loans Work