Mortgage News

Home Buyer Q & A

February 27th, 2012

• We are looking at buying a lot and would like to build. Please explain to me, what is acquisition cost? The acquisiton cost is the cost of construction plus the cost of the lot. So, if it costs $300,000 to build your home and the lot cost is $125,000 to purchase, your total acquisition cost would be $425,000. This number is important as it is where all loan-to-value numbers come from and is the basis for all borrowing, provided the construction project and lot appraise for a minimum of $425,000.

• We have owned our lot for years and are finally ready to look to build. We own the land free-and-clear. We paid $100,000 for the land years ago and believe the lot is now worth $200,000. Our builder has estimated a cost to build of $550,000. We really do not want to put any additional money into the construction, is this possible? Yes. When the pre-construction appraisal is ordered, the land is valued in today's dollars. You are only able to do this when you have owned the lot/land for 12 months or longer. This is your equity in the project. To compute, we would use the appraised value of the lot/land and the cost of construction on the home as a basis for loan-to-value and borrowing.
• What is the difference between a two-time close construction-to-permanent loan and a one-time close construction/permanent loan? The name tells it all. With a two-time close, you close one time for the construction loan, and a second closing when you convert the construction loan to a permanent mortgage. A construction/permanent loan closes once, a modification is executed to convert the term of the loan from construction to a permanent mortgage, there is no additional closing. Each has its advantages.
• What are the payments on a construction loan? Construction loan payments are interest only. Most construction loans are for a set period of time whether six or twelve months.

- Jennifer Keenan, Senior Mortgage Consultant, NMLS# 101837, Tidewater Home Funding 757-366-8690