One-Time Close Lets Customers Close Once on Two Loans

While new home listings bumped up in metro Denver in June , offering more inventory for home buyers, home prices also continued to rise. And even with more on the market, Denver's inventory is squeezed tight, with just 6,796 homes and condos available for sale at the end of June. That's a conundrum for eager home buyers who have the means and desire to purchase a home at a time when mortgage rates are at an all-time historic low, but can't because of low inventory.

For some home buyers tired of this race to first with an offer and then battling subsequent bidding wars, building their dream home may be an optimal option. That was the case for the Martinez family. They kept searching for their dream home, but it just couldn't be found given what's on the market right now. Instead of giving up and waiting, they decided to build it instead.

What helped clinch it for the Martinez family though was Vectra Bank's new One-Time Close loan product. The One-Time Close funds both the construction and mortgage loan on a new home up front and closed together at the same time, making it even easier for our clients to build their dream custom homes.

One-Time Close Versus Two-Time Close

Historically, banks typically work under the Two-Time Close system. That means a client first must apply and qualify for a short-term construction loan to build their home, then apply again for a long-term fixed or adjustable-rate mortgage  (ARM) loan once there is a certificate of occupancy. The construction loan is a temporary loan, which operates like a home equity line of credit. Once certificate of occupancy is in place, traditionally you must close again on a new loan to pay off the construction loan with a traditional mortgage loan.

Unlike some banks, Vectra Bank's clients need only apply and close once on both the construction and mortgage loan. Also different from some banks, Vectra clients pay interest only on the portion used during the construction phase. Also different from other programs, Vectra charges the same interest rate during construction as during the initial fixed-rate period of the permanent loan. That means Vectra's construction loan rates will likely be lower than those of some other banks.

This unique One-Time Close program  is a convenient way to secure construction funds that then transition to a permanent loan upon occupancy. By closing just once you save money with just one set of closing costs and fees. It also reduces the hassles of having to apply for a construction loan and then to requalify for the permanent mortgage.

How It Works

Once your construction is complete, your loan transitions to the permanent phase and your 6-24 month construction period rate is maintained. Rates are locked in for both the construction period and after, at today's rate. The borrower's initial interest rate covers both the construction period and the permanent mortgage loan. Homeowners have the choice of a 3/1 to 10/1 ARM, which means when the permanent loan kicks in, borrower is at the same rate for the initial fixed rate period; 3, 5, 7, or 10 years, then the rate will adjust annually for the remaining life of the loan. While the One-Time Close program does not offer a fixed rate permanent loan product, borrowers can still refinance at the end of the construction period, or at any time during the fixed rate period.

The loan also offers flexible principal reduction. For example, if you have a $500k One-Time Close construction loan and use only $450k of the total loan, you have the flexibility to take the final draw and modify to the $500K amount or pay down the loan and modify to a lower loan amount. Even after it's modified the borrower can re-amortize the loan, paying down principal and lowering the monthly payment for a reasonable processing fee.

Who May this Product Be Appropriate For?

The One-Time Close loan is suited for anyone doing a custom home build, where they are responsible for obtaining the construction loan.

Does this type of construction loan seem intriguing to you? Learn more about construction loans here.