ABC’s of Construction Loans
Building a home might sound like something reserved for the rich and famous, but the truth is, it might be easier than you think to get a construction loan.
What is a construction loan?
Construction loans are short-term, higher-interest-rate mortgages that cover the cost of building or renovating a home. The buyer qualifies for the final mortgage and the lender pays the contractor for cost on a pre-approved schedule. Once the construction is complete, the loan is converted into a traditional home loan.
Type of Construction Loans
Construction to Permanent – Converts to a permanent loan with the interest rate locked in at closing.
Construction Only – Must be paid off when construction is complete, so the borrower will then need to get new financing.
Renovation Construction Loan – Cost of renovations are included in the original mortgage based on the value of the home after the repairs or upgrades. Best used for buying a fixer-upper property.
What’s included in the loan? The construction loan generally pays for:
Labor and materials
Plans, permits, and fees
Contingency reserves to allow for changes and delays
Can I qualify? All mortgages have minimum qualifications for approval. Construction loans are riskier for the lender because there is no existing collateral in the form of the home. Along with typical requirements for debt-to-income limits and FICO score minimums, the lender will often ask for a higher down payment (30% is typical) and a plan to pay off the loan at the end of the project (proof of cash or loan).
Things to Consider before Buying a Home Together
It used to be that couples first got married, and then bought a home together. No more! Modern couples no longer consider marriage a prerequisite for buying a home together. Buying a property together can complicate either a breakup or a divorce if not considered upfront.
No one likes to think about the end of a relationship, but buying a home is a huge investment – not only in the relationship but financially. The partners may have differences in income, down payment, and contributions to the home. In the event of a separation, how will these issues be addressed? In other words, what happens if you break up?
The easiest way to ensure that everyone is protected is the title. Most married couples opt for Joint Tenancy that provides each homeowner an equal interest in the value of the property. The assumption is that marriage involves a merging of income and assets.
For couples who plan to keep their finances separate, a better option could be a Tenancy in Common. This form of title provides each owner with a separate, transferrable interest in the property. The interest does not need to be equal to the other; this could give one a larger interest if they contribute more financially. The interest can also be sold or inherited separately.
Don’t let the excitement of a home purchase keep you from considering the future. Before closing on that dream home together, consider the exit strategy – just in case.
Can You Sell An Outdated House?
It seems that everywhere you turn there are companies who advertise buying ugly houses. These messages offer to quickly buy any house, regardless of the condition. The problem is that their offers are often significantly below market value.
If you’re a seller whose home needs some attention, you might think these companies are your only option. Some of the offers sound attractive; quick sale, all cash, no commissions, and no fees. But before you do anything, it’s worth your time to call a local real estate agent for a second opinion.
3 Reasons to Call a Real Estate Agent Now
1. Free Advice–The real estate agent will not charge you anything to simply come look at your home.
2. Your House Might Not Be that Ugly–You may be surprised to find that your home is quite marketable. A few years ago, a 1950s mid-century modern home would have been considered a tear-down. Now, these ranch homes command top dollar and are in very short supply.
3. A Path Forward–If your home does have some issues, the agent can offer some ideas about moving forward. They can suggest local contractors to provide repair/upgrade services or market to investors that might still offer significantly higher prices than the quick-sale guys.
Even outdated houses sell. We are in a seller’s market in almost every part of the country. Selling your home has a large financial impact on you and your family. Don’t make assumptions about value, reach out to a real estate agent, and make sure you understand all your options so you can get the best offer possible.
Selling The Family Home?
Family is important, and your decision to sell your home may be difficult for those closest to you. Moving can create mixed emotions, and it’s important to help your family understand how and why you made your decision. Including family members in the process can prevent strong emotions from potentially sabotaging the sale.
As soon as you decide to sell your home, set aside time to have a serious conversation with the rest of your family. If you have children living at home, they may be fearful of leaving their home, their school, and possibly their friends. Listen to them and reassure them of the safety of the family unit.
You can’t promise that nothing will change, but share the good things you expect to get from the move; a bigger home, a better job, advantages of the new area, etc. Help your children see that you’ve considered them from the very beginning and explain why it will be a good move for them as well.
Adult children might be difficult as well. Even though they have left the home, they may be less than enthusiastic for several reasons. They may question your decision to move into the new home or area, or they might simply be nostalgic and sad to see their childhood home sold.
A home is a special place and the decision to sell, especially if you’ve been in the home for a long time, affects not just you but your family. You can help bring them into the conversation by making time to listen and understand their concerns and then share your own. This way, while you might not all agree, no one will feel left out of the decision.
Special Benefits of the VA Loan
Our military veterans have given so much to this country. To make it easier for these special families to qualify for and purchase a home, Veteran Affairs has a unique loan offer reserved only for retired and active military.
The VA loan offers mortgage options unavailable to the general public.
- No Down Payment – While zero down loans disappeared in the real estate bubble of the last decade, VA loans allow our military to buy a house without the stress of trying to save the down payment.
- Easier to Qualify – Most loans require a credit score of 650 or higher. Qualifying for a VA loan only requires a FICO score of 620.
- No PMI – PMI (private mortgage insurance) is required for any loan where the loan-to-value falls below 80%.
- Limits on Fees – VA borrowers are protected by strict limits to fees and closing costs. Lenders financing a VA loan cannot charge more than 1% for loan costs whereas typical financing can run as high as 2.4–3%.
- Appraisal Assistance – At times homebuyers run into problems when the appraisal does come back high enough to purchase the home at the agreed-upon price. When this happens, the VA can help by diligently reviewing the report and comparable properties and then asking the lender to adjust the appraisal if it determines that the value is not accurate.The VA loan is a special loan program offered only to our active and retired military. These families have sacrificed so much for their country, the VA loan might be the only way these families can buy a home of their own.
Your “Starter Home” Might Last Longer than You Think
New homebuyers often tell their agents that they are looking for their “starter home.” Several factors go into this approach. These are typically younger buyers, often without children. They may be looking for a maintenance-free home, like a condo, or they might assume that starter homes are more budget-friendly. There are plenty of good reasons to buy a home with the assumption that it’s only for a few years, but it’s usually wise to consider the fact that it might be for much longer.
As 2020 demonstrated so clearly, things can change without warning. Homebuyers choosing a small condo with the intention of living in it for only a few years might later find themselves trying to carve out space for children due to employment challenges or market changes. The good news is that many times— once you add in association fees, taxes, and other costs—an older home that needs updating could be just as economical as a brand-new condo with all the latest design features.
When buying your first home, it’s important to consider how you would manage if you needed to stay longer than expected. An older home might offer a yard where you could expand, or extra rooms which can become bedrooms. These options can give you flexibility as your lifestyle changes over the years.
If you buy your first home with the future in mind, you can protect yourself from the unexpected income changes, real estate price booms, or any other outside influence. Don’t discount the older fixer-upper simply because you plan to move in a few years—plans change, and giving this some prior thought can help you adjust more painlessly in the future.
10 Home Inspection Issues Red Flags
Most home buyers realize that they can’t expect a perfect home inspection report when buying a resale home. Cosmetic flaws and minor repairs are easily managed and shouldn’t be deal breakers. That said, there are some issues that are more serious and should give the buyer pause if not addressed adequately.
10 Home Inspection Red Flags
- Leaky and Rundown Roofing–watch for signs of current or past water damage.
- Poor Drainage–drainage issues can cause serious damage to the home foundation, siding, and basements.
- Foundation Issues–signs of foundation problems can include cracks around doors and windows or uneven floors. Foundation problems can cost thousands of dollars to correct.
- Plumbing Problems–major plumbing issues should be considered carefully and further explored.
- Pest Infestations–termites and other wood-eating pests can cause extensive damage that can be hard to find and costly to repair.
- Mold–that “musty” smell could be due to hidden mold and further investigation should be taken as mold can be dangerous to the health of the family. Depending on the type of mold, it can be very difficult to remove entirely.
- Faulty Heating System – a malfunctioning furnace can be a fire hazard.
- Electrical Wiring–faulty wiring can cost thousands of dollars to repair.
- Structural Damage–sagging joists, rafters, and door jambs can be evidence of larger issues.
- 10. Deferred Maintenance – a home in poor condition could be hiding more serious issues due to chronic neglect.
Homebuyers should be alert to these issues and know the costs to repair before concluding the sale. Home sellers should address these issues before putting the home up for sale to ensure they get the best possible sales price.
Mid-Century Modern vs. Contemporary
There has been a great deal of excitement in the design field concerning the Mid- Century Modern style. This ’50s and ’60s home décor trend is evidenced in every furniture store as more brands are incorporating the vintage look with modern lines. Yet what differentiates a Mid-Century Modern style from one that is merely Contemporary?
Both styles tend toward the minimalist look, but Mid-Century often features more color. Colorful carpets, walls, and furnishings—as well as vibrant wall trims and wallpaper—are all signs of a Mid-Century room while Contemporary styles lean toward neutral tone-on-tone elements with limited design extras, such as pillows or rugs.
Another common design element is the clean lines of cabinets and furnishings. Sharp corners and minimal finishings link the two styles together. Mid-Century Modern, however, often includes natural elements such as wood; furniture often includes graceful curves. Contemporary pieces are often colder by comparison and emphasize a sleek design that can fade into the overall look of the space; no single element commands attention.
Finally, the flow of Mid-Century Modern homes differs from that of a Contemporary home. The trend toward open floorplans and great rooms is a new concept and Mid-Century homes include multiple spaces for specific purposes. For instance, it’s common to find an eat-in kitchen walled off from the living spaces, perhaps with a pass-through window or wet-bar area for serving.
Mid-Century Modern design introduces some beautiful options for homes. With thoughtful design concepts, it’s possible to introduce some of these elements to any home. Merging eras and styles is one way to create a unique home environment that is both functional and beautiful.
Tips for the First-Time Home Seller
There is a lot of attention paid to first-time homebuyers. Most real estate agents and lenders have some kind of guide to help first-time homebuyers navigate their first home purchase, but what about the first-time seller?
Selling your home for the first time can be just as confusing as a home purchase, so here are a few things to remember as you navigate your home sale.
Before that first showing, it’s important to prepare. This involves not only cleaning, decluttering, and staging the home, but also learning about your local real estate market and finding the best agent for your needs.
Interview more than one agent and ask lots of questions. Learn about the services they offer: do they include professional photography, video, or virtual tours? Ask for a comprehensive market analysis (CMA) and ask each agent their suggestion for the listing price and their method for arriving at that number. Use this information to determine the best agent to assist you.
Once you have an agent, stay involved. Discuss the plan for showings and open houses. Try and be flexible to allow for as many potential buyers as possible viewing your property. Review the listing online for accuracy and stay in touch with your agent for feedback from showings.
Once you start getting offers, respond as quickly as possible. It’s not just about the price; watch for terms, such as length of escrow and contingencies, when evaluating these offers. Be prepared to move so that you can take advantage of a good offer, such as all-cash.
The most important aspect of a successful home sale is the relationship you have with your agent. Be transparent about your needs, concerns, and goals; insist that your agent do the same, and working together you will navigate through your first home sale successfully.
Understanding the Back-Up Offer
“When can I consider my home sold? This is one of the most common questions real estate agents are asked. While the laws vary in different states, generally the contract is binding once both parties sign the offer. At that time the closing process begins. This is also the time when sellers must stop considering other offers, but they can accept back-up offers.
What is a back-up offer? This is when the seller accepts an offer contingent upon the first one falling through. There are many reasons why the home purchase might not close—the buyer may fail to secure the loan, the home inspection may find issues the two parties can’t resolve, it could even be that the Homeowner’s Association has rules that the buyer is unprepared to accept. Whatever the reason, real estate agents know that the deal isn’t done until it closes.
A back-up offer should be carefully executed. Both buyer and seller must be able to pursue other options. Unless the buyer is willing to wait without seeking an alternative property, the back-up offer should be written to allow for the possibility that they find an alternative home in the meantime. The seller, on the other hand, must make clear they are currently obligated to another buyer and will consider the back-up offer only if the current one cancels.
Back-up offers can be a great tool in a fast-moving real estate market. Writing the offer virtually guarantees the listing agent will notify you if the home becomes available again. This gives the buyer an advantage in a seller’s market, increasing the opportunity to capitalize on a home that fell out of contract.