Building a new home in Utah means financing two things: the construction itself, and the mortgage you'll live with once the house is finished. Construction loans handle that in one of two ways, a one-time close or a two-time close.
How a construction loan works
Either way, the build follows the same basic steps:
- Get pre-approved and choose a licensed builder.
- Submit plans and a budget. Your builder provides the plans, specifications, and a full cost breakdown for underwriting.
- Close on the construction loan. The money is held and released as the build progresses.
- Draws. As each stage is finished, such as the foundation, framing, roof, mechanical, and finish work, the builder requests a draw. An inspector checks the work before the money is released.
- Move to your permanent mortgage after the final inspection and certificate of occupancy.
During the build you typically pay interest only on the money paid out so far. Most Utah construction loans allow about 12 months to build, and some can extend to 18 months.
The difference between the two loan types is what happens in step 5.
One-time close (construction-to-permanent)
You close once, before construction starts. When the house is done, the construction loan converts into your permanent mortgage. There's no second application or second closing.
Advantages:
- One set of closing costs.
- Your permanent rate can be set before you break ground, so you know your long-term payment up front.
- Lot and construction can be rolled into one loan, so you don't need separate land financing.
- VA and FHA both offer one-time close construction loans, which opens building up to veterans and buyers with smaller down payments.
Trade-offs: You lock in your long-term loan before the build, so if rates fall during construction you don't automatically benefit. You also have to qualify for the permanent loan at the start.
Two-time close
You take out a short-term construction loan first. When the house is finished, you close a second time on a separate permanent mortgage that pays off the construction loan.
Advantages:
- You choose your permanent loan later. If rates drop during the build, you can take advantage.
- More flexibility to shop for the permanent loan when the house is done.
Trade-offs:
- Two closings and two sets of closing costs.
- You have to qualify twice. If your income, debts, or credit change during the build, the second approval can be harder.
- Rate risk. If rates rise during construction, your permanent payment rises too.
Which one fits you?
| If you... | Lean toward |
|---|---|
| Want certainty about your long-term payment | One-time close |
| Are using a VA or FHA loan | One-time close |
| Want to finance the lot and the build together | One-time close |
| Expect rates to fall during your build | Two-time close |
| May have income changes during the build | One-time close, so you only qualify once |
Before you talk to a builder
Get pre-approved first. Knowing your budget before you sit down with a builder keeps plans realistic and avoids redesigns later. Our construction loan page covers the programs we offer, and our affordability calculator helps you set a target.
Planning a build?
We help Utah families finance new construction from lot to move-in. Book a free call and bring your builder's estimate if you have one.