What is a construction-to-permanent loan?

A construction-to-permanent loan (also called a one-time-close or single-close loan) finances both the construction of a new home and its permanent mortgage in a single loan. During construction, you draw funds as work is completed and pay only interest on amounts drawn. Once construction is complete, the loan converts to a standard mortgage automatically. The advantage is you lock in your permanent rate upfront and go through underwriting only once. Two-close construction loans require separate financing for construction and a separate permanent mortgage, meaning two sets of closing costs and two underwriting processes.