About The Real Estate Group

The Real Estate Group (TREG) "Partners in Excellence"

The mission of The Real Estate Group, LLC is to be Hampton Roads finest provider of real estate services. Our goal is to create a company that provides absolutely the best service for our customers by fostering an environment of teamwork and a common vision. The Real Estate Group, LLC consists of an accomplished team of skilled professionals who take pride in their work and their company. We work hard to go beyond the expectations of our customers, agents, and employees.

Understanding Your Loan Options When Building a Home

Lot loans and construction loans are great options for home buyers who are utilizing a custom builder or building


their own home. There are really three ways to go about it:

1)      Lot loan. The lot is bought and held on to for an extended period of time until you are ready to build. Typically, with this lot loan, consumers will have the option of making interest only payments, and the interest rate would be based on the prime rate as published in the Wall Street Journal. Most banks require a 20% down payment on the lot acquisition, and closing costs are kept at a minimum. There is no escrow account set up for the tax payments. It’s important to note that with this option, you could have up to three sets of closing costs: once with the lot acquisition, another on the construction loan, and yet another on the closing of the permanent mortgage.

2)      Construction loan. With this option, consumers are building a house right away; they have the builder selected, the house plans determined, and the lot on which to build it picked out. The borrower is generally required to make a 20% down payment on the total acquisition cost (the cost to buy the lot and build the house) at the time of the loan closing plus pay all of the closing costs.

The construction loan works like a line of credit: borrowers have a set credit limit determined by the bank to be sufficient to buy the lot and build the house, and in most cases there is a built-in cushion just in case there are any cost overruns. The loan payments are also interest-only, and the home buyer is responsible for all taxes and insurances separately. Lot loans are typically a 1-or-2-year term, and the first draw is usually taken at closing to buy the lot; construction begins soon thereafter. For this option, there are two sets of closing costs: once on the closing of the construction loan, and another on the closing of the permanent loan. Having their ducks in a row with the builder and the plans saves consumers money by eliminating one set of closing costs.

3)      1XCP. This is a one-time close, construction to permanent loan. This option has all of the same requirements as the construction loan (20% down, plans and specifications in order, lot picked out, builder at the ready, etc.) but it features only one closing and therefore saves consumers a good amount of money by eliminating two or three separate closings. There is little flexibility in this option, so borrowers must stick to the plan or else prepare to shell out their own cash on all the upgrades they want to do. With this option, the consumer already knows the loan amount of the permanent mortgage, so once the construction is complete, the loan is modified to a permanent loan.

 

Mike Miller is a Vice President at Regional Home Mortgage and is the Branch Manager for the Virginia Beach, VA office. He may be reached at 757-961-9291 or mmiller@monarchmortgage.com.

Regional Home Mortgage is a trusted affiliate of The Real Estate Group. 

 

About The Real Estate Group

The Real Estate Group (TREG) "Partners in Excellence"

The mission of The Real Estate Group, LLC is to be Hampton Roads finest provider of real estate services. Our goal is to create a company that provides absolutely the best service for our customers by fostering an environment of teamwork and a common vision. The Real Estate Group, LLC consists of an accomplished team of skilled professionals who take pride in their work and their company. We work hard to go beyond the expectations of our customers, agents, and employees.