Construction loans, and why the one-time close usually wins.

A construction loan funds a build in stages rather than handing over a lump sum at closing. Money is released in draws as work is completed and inspected - foundation, framing, mechanical, finish - and during the build you pay interest only on what has actually been drawn, which keeps the cost down early when little has been advanced. The lender is underwriting the builder and the plans as much as they're underwriting you, so expect the builder's licence, financials, contract and schedule to be reviewed alongside your own file.

One Close or Two

The structure worth understanding is one close versus two. A two-close arrangement means a construction loan followed by a separate permanent mortgage once the house is finished: two applications, two sets of closing costs, and critically, a second underwrite at the end - so if rates have risen or your circumstances have changed, that second approval isn't guaranteed. A one-time close, sometimes called construction-to-permanent, closes once and converts automatically to the permanent loan at completion. It usually costs a little more in rate, and it removes the risk of being unable to finance a house you have already built. In most circumstances that is worth paying for, which is why it's the version most borrowers should be asking about by name.

If you would like to explore whether a construction loan matches your purchase price, credit profile and long-term budget, reach out to 3E Lending to speak with our licensed Texas mortgage team in Katy.