Menus for Articles
Specialty Loan Types
The Texas-2-Step for Acquisition and Renovation
The Texas 2-Step is the perfect solution for many individuals seeking to acquire a property needing significant repairs or remodeling.Although AmeriFund offers the FHA 401K, Fannie Mae Home Style, and Freddie Mac renovation loans for this type of transaction, our proprietary Texas-2-Step will typically result in far superior financing terms and will often permit a buyer to avoid mortgage insurance without a 20% down-payment or cash-outlay.That’s because the FHA, Fannie Mae, and Freddie Mac programs use the cost of acquisition and improvements to determine the maximum loan amount and loan-to-value ratio. The AmeriFund Texas-2-Step will utilize the appraised value of the renovated property.Let’s look at an example to illustrate this difference.Let’s assume you’re a potential homebuyer seeking to purchase a primary residence in a neighborhood where remodeled homes sell at a premium. You found a property that needs significant remodeling. You can acquire this property for $200,000 in its current condition. It needs $50,000 of repairs and remodeling. In its current condition, the appraised value is $200,000. But when remodeled it would appraised for $290,000. This is a very common scenario.With the agency renovation loans, the deemed value is the cost of acquisition plus the cost of improvements. Thus, to avoid mortgage insurance, you’d be limited to a loan amount of $200,000 (80% of $250,000) and your total cash outlay would be $50,000. Yet with the Texas-2-Step the value is the value with improvements ($290,000) and you can borrow up to $232,000 (80% of $290,000) without PMI, requiring a cash outlay of $18,000, instead of $50,000.For that reason, the Texas-2-Step is also beneficial to investors seeking to purchase properties with a cash-outlay of less than the 20% to 25% that is typically required on conforming investor purchase transactions. An investor could utilize our example in the preceding paragraph to purchase a property, without PMI, with a cash-outlay (down-payment) of less of 7.2% of the transaction amount. This type of property, acquired below value, is ideal for an investor. Because it is acquired below value, during periods of low interest rates the property will typically cash-flow immediately, despite having nominal equity.The Texas-2-Step is a fantastic program, designed to reduce the cash required to purchase a property with lower financing costs than on other standard FHA, Fannie Mae and Freddie Mac programs that include financing improvements. And, of course, it’s only available at AmeriFund. This program results in superior financing terms and a lower rate than FHA 401K and Fannie Mae , .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.