DSCR One-Time Close Construction Loan: How to Skip Hard Money and Save on Closing Costs
If you’re a fix and hold investor planning to build or do a full gut remodel and convert the property into a rental, there’s a loan program worth knowing about that most investors have never heard of — a DSCR one-time close construction loan. Here’s how it works and why it can save you a significant amount of money compared to the traditional hard money route.
The Problem With Hard Money for Construction Projects
The traditional path for ground-up construction or a full gut remodel looks like this:
- Take out a hard money loan to fund the project — expensive rates, expensive fees
- Pay a full set of closing costs at the start
- Complete the project
- Refinance into a DSCR or conventional loan
- Pay a second full set of closing costs all over again
Two sets of closing costs, high hard money rates, and the headache of dealing with multiple lenders. It adds up fast.
What Is a DSCR One-Time Close Construction Loan?
This program bundles the construction financing and the permanent long-term DSCR loan into a single loan with a single closing. You finance the build, complete the project, and then the loan automatically converts into a 30-year fixed DSCR loan — no refinance, no second closing, no second set of closing costs.
Like any DSCR loan, there’s no personal income verification. No W2s, no tax returns, no job verification. The lender only looks at what the property will rent for once it’s completed.
Who This Program Is For
This is specifically designed for fix and hold investors — people who plan to convert the finished project into a long-term rental or short-term rental. It is not designed for fix and flip investors.
Down Payment and Asset Requirements
- 25% down is the minimum if you’re purchasing the land and bundling in all construction and renovation costs
- If you already own the land outright, the full value of the land can be used dollar-for-dollar toward the down payment requirement and even toward closing costs — meaning you may not need to bring any additional cash to the table
That second point is a big deal for investors who already have land sitting idle.
How the Appraisal Works
The appraiser evaluates the property based on its projected value and rental income after construction is complete — not what it looks like today. The lender can order either a long-term or short-term rental rent schedule depending on your intended use.
For example, a client building a short-term rental in Sedona got a short-term rental appraisal that came in close to twice what a long-term rental schedule would have produced. That stronger income projection translated into a much better DSCR ratio, making it significantly easier to qualify.
Interest Rates During Construction
The rate during the construction phase will be a bit higher than the permanent loan rate. That’s normal. But here’s what matters: it’s still likely to come in well below what a hard money lender would charge — and when the project is done, the loan simply modifies into the long-term 30-year fixed DSCR rate without a new closing.
Qualification Requirements
To qualify for this program you’ll need:
- 700+ credit score
- Some investor experience in the past three years
- 25% down payment — or land equity that covers it
That’s it. No income documentation, no employment verification.
Why This Program Makes Sense for the Right Investor
The math is straightforward. You’re cutting your closing costs roughly in half, avoiding hard money rates, skipping the second refinance entirely, and qualifying based on the property’s projected rental income after completion. For a fix and hold investor doing a ground-up build or major renovation, this is one of the most cost-efficient financing options available.
FAQ
What is a DSCR one-time close construction loan? It’s a loan that combines construction financing and a permanent DSCR loan into a single closing. When construction is complete, the loan converts to a 30-year fixed DSCR loan with no refinance needed.
Do I need to show income to qualify? No. Like all DSCR loans, qualification is based on the property’s projected rental income, not your personal income.
What credit score do I need? A minimum of 700 is required for this program.
Can I use land I already own as a down payment? Yes. If you own the land outright, its full value can be applied dollar-for-dollar toward the down payment and closing costs.
Is this program available for fix and flip investors? No. This program is designed for fix and hold investors who plan to rent the property after completion.
How is this different from a hard money loan? Hard money requires a separate refinance after construction, meaning two sets of closing costs and typically higher rates. This program is one loan, one closing, and converts automatically to a permanent DSCR loan when the project is done.
Have questions about the DSCR one-time close construction loan? Reach out and I’ll walk you through whether it fits your project. Austin Clarence | NMLS #1509690 | (602) 737-2576 | aclarence@nexamortgage.com