The Texas 2-Step
100% financing on New Construction
What is the Texas 2-Step?
The Texas 2-Step for New Construction is Retiro Financial's unique format for financing new construction. It's better than both the traditional construction to perm format and the one time close. We guarantee that the overall cost of financing (lender fees, including points, mortgage insurance and cumulative interest over the loan) will be less than with any competitor's alternative. Bring us your interim and permanent financing quotes in writing and we'll show you just how much you can save with the Texas 2-Step.
On qualifying properties it has a lower cash outlay requirement than either the one time close or a traditional construction to perm. And for borrowers having difficulty qualifying with the alternatives offered by our competitors due to credit scores or debt to income ratios, the Texas 2-Step improves the borrower's chances for getting the loan approved.
This article explains how the Texas 2-Step can be utilized to reduce or eliminate a borrower's cash outlay on new construction, which typically requires a borrower to invest at least 20% of the project cost from his own funds. This unique program can reduce cash outlay on investment property purchases and remodeling projects as well.
It's a hybrid of the traditional two-close construction perm!
This program has the advantages of a traditional two-closing construction to perm transaction with more-flexible underwriting and superior permanent mortgage rates. The process works much like the traditional two-closing process with the same three phases and two separate closings.
But we solved the problem with the traditional construction to perm that typically requires the borrower to bring 20% or more to closing on the interim loan. For properties that will appraise for more than the cost of land acquisition and construction we can lend up to 100% of the project cost and if it appraises for enough we can even roll in the closing costs.
Here's an example: Buddy's brother worked for a home builder who was willing to cut 15% off what the builder typically charged for construction. Buddy was able to get a good deal on the land too. He acquired the land for $50,000 and with the reduced cost of construction was able to do the construction of the home for $150,000. Total project cost of $200,000. But because of the deals he got, the property appraised, subject to completion of improvements, for $250,000.
Most banks and lenders would require Buddy to put somewhere between $20,000 and $40,000 into the deal. The best one time close he could find was willing to do 90% of the $200,000 (a loan of $190,000). But at this 90% loan to value ratio Buddy would have to have private mortgage insurance. That added $45 per month to his mortgage payment. And he was going to need $20,000 plus another $7,000 in closing costs to get the deal closed. That was more than Buddy could come up with.
Never fear. Retiro Financial to the rescue! We arranged the financing for the full $200,000. That because we based the loan amount on the appraised value. We ignored the project cost. It was irrelevant on this program. And because we consider this scenario to be an 80% loan to value, there was no mortgage insurance required. Our 30 year fixed-rate loan was a full .375 better than the competition with the same closing costs. Bottom line, Buddy was able to get the whole thing done with less than $7,000 out of pocket and his monthly payment without the mortgage insurance payment and the lower rate was $7 less than the payment on the one time close despite having a loan amount that was $20,000 more.
The key to this scenario was, of course, the fact that the property appraised for significantly more than what it cost Buddy to build the home. But even with less dramatic differences in value Retiro Financial's superior permanent loan pricing will usually make the Texas 2-Step the better choice.
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