Two-Time Close Construction Loans

A two-time close construction loan uses two separate loans and two closings. First, you close on a short-term construction loan that pays the builder in draws while the home is built. When the home is finished, you close on a separate permanent mortgage, such as a conventional, FHA, VA or USDA loan, that pays off the construction loan. Because the permanent loan is a new loan, your income, credit, assets and the finished home's appraisal are checked again at that point. A one-time close combines both phases into a single closing instead.

Phase one: the construction loan

• A lender, often a local bank, approves the builder, the plans, the budget and the land.
• Funds are released in draws as work is completed, usually after inspections.
• During construction, payments are often interest on the amount drawn so far.
• The construction loan has its own terms, pricing and maturity date.

Phase two: the permanent mortgage

• When the home is complete, you apply for a regular mortgage, from the same lender or a different one.
• The new lender underwrites you again under the permanent program's rules and appraises the finished home.
• You lock a rate for the permanent loan when that application is active.
• At the second closing, the permanent loan pays off the construction loan.

Two-time versus one-time close

• Closings. Two-time: two closings and two sets of closing costs. One-time: one closing. Fannie Mae's single-closing construction-to-permanent rules are in B5-3.1-02, and VA's are in Chapter 7 of the Lenders Handbook (VA M26-7).
• Re-qualification. Two-time: you qualify again at the end. One-time: the permanent terms are generally set at the start, subject to the program's conversion rules.
• Flexibility. Two-time: you can choose a different permanent lender or program at the end. One-time: you are generally committed to the permanent loan from the start.
• Risk. Two-time: if your job, credit, rates or the appraisal change during the build, the permanent loan may look different from what you expected.

See construction financing for the full overview.

Texas notes

When you build on land that will be your homestead, Texas homestead law affects how construction liens work. The Texas Constitution allows liens for work and materials used to construct new improvements on a homestead when the contract meets its requirements (Texas Constitution Art. XVI, Sec. 50(a)(5)). The title company and lender handle the documents. Homestead size limits are in Property Code Section 41.002 (Property Code Ch. 41).

Fictional example

Fictional example: a Fort Worth area buyer uses a local construction lender to build on a lot the buyer owns. During the nine-month build, the buyer pays interest on the drawn balance. When the home is complete, the buyer applies for a permanent conventional loan with a different lender, gets a new appraisal of the finished home, locks a rate, and closes. The permanent loan pays off the construction loan. Because the buyer changed jobs during the build, the permanent lender needed extra documentation, which added two weeks.

Common mistakes

• Treating the construction approval as a guarantee of the permanent loan.
• Changing jobs or taking on new debt during the build.
• Not budgeting for two sets of closing costs.
• Not planning for a rate lock on the permanent loan.

Next step

If you are planning to build, I can compare a one-time close with a two-time structure for your situation before you sign with a builder. Book a call, or start an application.

Related questions

• Construction financing
• How does a one-time close construction loan work?
• How a rate lock works

Sources

Links checked Oct 21, 2026.

• Fannie Mae Selling Guide, B5-3.1-02 Conversion of Construction-to-Permanent Financing: Single-Closing Transactions (Guide published Oct 7, 2026): https://selling-guide.fanniemae.com/sel/b5-3.1-02/conversion-construction-permanent-financing-single-closing-transactions
• VA Lenders Handbook M26-7, Chapter 7 Loans Requiring Special Underwriting, Topic 2 Construction/Permanent Home Loans (current chapter): https://www.benefits.va.gov/WARMS/docs/admin26/m26-07/chapter_7_loans_requiring_special_underwriting_guaranty_or_other_considerations.pdf
• Texas Property Code, Chapter 41 Interests in Land Exempt from Seizure (41.001, 41.002) (current text): https://statutes.capitol.texas.gov/Docs/PR/htm/PR.41.htm
• Texas Constitution, Art. XVI, Sec. 50 (homestead protection; (a)(6) home equity, including (a)(6)(E) fee cap) (current text): https://statutes.capitol.texas.gov/Docs/CN/htm/CN.16.htm

About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.

Equal Housing Opportunity.

Last reviewed: Oct 2026

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