Mary Beth: Hi, this is Mary Beth Harrison with Dallas Native Voice, and today we’re sitting with our friend Jason Browning with Academy Mortgage, and I want to talk about new construction, like from the ground up, new construction. So when our clients come to us and say, “We want to build a home,” how does that work as far as a loan’s concerned?
Jason Browning: Well, that’s a very good question, and I bet you’re seeing a lot of that in this area, especially with the tear downs and the rebuilds, or the inherited land and so forth. So basically, we offer a one-time close product. So what that means is you go to the title company one time, you close on one loan, and it makes it a much smoother, better rate, better closing cost, and we want [inaudible 00:00:37] that detail, as well.
Mary Beth: Okay, so I found this lot that I want to buy, and I found my builder, and so we’re going to go to the title company and do one closing?
Jason Browning: That is correct.
Mary Beth: And that’s going to hold true all the way through till this house is finished?
Jason Browning: Yes, absolutely correct. You’ll get your architectural drawings put together. You’ll get all that stuff going to you. You’ll actually present all that at the time of being approved. You’ll know what you’re qualified for at that point, and the good thing about doing a one-time close, per se, is you only qualify one time. You’re not having to qualify when you do your permanent loan.
Mary Beth: Okay, permanent loan meaning when the house is finished, we now turn that into a permanent loan.
Jason Browning: Right, you went from one construction loan to a permanent loan.
Mary Beth: Okay, so we buy the lot. Let’s just use some easy numbers here. We buy a lot for $100,000, which is impossible to find, but should we find it, we buy a lot for $100,000, and we know from this builder that we’re going to build a $500,000 house. So we’re going to go to the closing table and borrow $600,000.
Jason Browning: That is correct.
Mary Beth: Okay, so when do my payments start?
Jason Browning: Very good question. So you don’t have a payment, a full principal and interest payment, until the loan is done, until the building is done. So in the interim you’ll be paying for just your interest only on the amount that you’ve drawn so far, so that payment will go up slightly, but it’s only the interest on the loan.
Mary Beth: So in this instance, the first payment would be because of the $100,000 lot, and my builder needs a third of the project to begin with, so let’s just say a couple hundred thousand dollars. So we’re starting this whole process off with about $300,000. So I’m paying on that, interest only?
Jason Browning: Just interest only, no [inaudible 00:02:15], so that cuts down on the payment considerably.
Mary Beth: So I don’t make a payment on the $600,000 loan until the day I’m handed my keys and the builder says we’re good.
Jason Browning: That is correct.
Mary Beth: Okay, so how does the appraisal work on something like this? Because typically we get an appraisal on our houses that we’re purchasing, but they’re already built, you have something to appraise.
Jason Browning: Right, so that’s another very great question. So the one thing about doing a one-time close that is a benefit there, as well, is you’re doing the valuation one time at the front, so you’re not worried about surprises on not being valued.
Mary Beth: Ah, okay. So from day one, we know that this house is going to appraise for $600,000 in this neighborhood, and we’re ready to go.
Jason Browning: Yes, ma’am.
Mary Beth: What an easy way to do business. Why wouldn’t everyone do that? Because I’ve heard more of you buy the lot at $100,000 and then you go back when the house is finished and now you’ve got to start that whole loan process all over again.
Jason Browning: That’s right.
Mary Beth: We know how painful that is.
Jason Browning: Well, it’s like qualifying twice, going through [inaudible 00:03:11] twice.
Mary Beth: And appraisals twice, and all of that. So this is all a one-time thing. One payment, you’re done.
Jason Browning: Right, and also, just to go into that, as well, usually when you’re doing that second loan, you have about three to four percent in cost that would be alleviated by doing a one-time close.
Mary Beth: Wow. Okay, so here’s a scenario. My parents gifted me the lot. It was my grandmother’s, and now it’s mine, so I already have the lot. So now am I just getting a loan for then the construction?
Jason Browning: That is correct. So the lot is owned. It actually counts toward your equity, and also you can own that for one day and it would be okay.
Mary Beth: So in this instance of $100,000, I would already have equity in this whole project of $100,000.
Jason Browning: That is correct, and that can go towards down payment and closing cost.
Mary Beth: Oh, wow, okay. And so, all right, here’s another one. I own this house, and I want to tear it down and build a new one on the same lot.
Jason Browning: Yes, that is absolutely doable. So what you do there is, again, you’re going to go to that final product of what’s the value like, that one-time appraisal, one-time close, and one-time cost, one-time qualification.
Mary Beth: And then I guess that would take in tearing down the house as part of the cost of building?
Jason Browning: The demo would go into that, as well.
Mary Beth: Right, wow, that certainly makes new construction an easy decision, when you can do it, when you can find it and make that happen. One last thing, let’s talk about new construction already built. You’re buying a new construction product. That’s just a simple loan, isn’t it?
Jason Browning: That’s a standard transaction.
Mary Beth: Because it’s already done and you already know what you’re getting, and the appraisal and everything is already there.
Jason Browning: That is right. That’s a cookie cutter loan, yes.
Mary Beth: All right, all right, super. Well, I learned a lot today about new construction. Kind of makes me want to go out and build a house.
Jason Browning: I’ve got a loan for you.
Mary Beth: That’s convenient. Well, thanks for listening. You can find us on all social media. We go where you go, and you can always find more information at dallasnative.com. And thanks for listening.