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How You Can Finance Construction on Your Home

By U.S. News & World Report

This spring is shaping up to be the most competitive homebuying season in decades, with inventory at historic lows and plenty of buyers to drive up prices in every part of the country. As springtime temperatures rise and buyers play seek-and-find, it’s not unusual for sellers with attractive homes priced at market value to have an offer within days (or hours) of being listed.

New home sales are full throttle, and prices are too, dampening the dreams of those who want today’s amenities and features at an affordable cost.

But for buyers with a vision and a plan, the market’s tight supply and rising prices can create unique opportunities to have their proverbial cake and eat it, too. These folks are open to seeking less-than-perfect homes — houses with good bones in good neighborhoods, or home sites that can be transformed into exactly what they’re looking for.

[See: Should You Live Near a Cemetery, Casino or These Other Landmarks?]

These buyers may even have a vision for renovating their own homes instead of trading up. Indeed, the era of HGTV offers guidance for what is possible: A 1950s cottage, in a state of disrepair, gets revitalized into a 21st century smart home; a neighborhood eyesore, on a large unkempt lot, morphs into showplace; a 1980s center hall colonial gets an open floor plan and the “wow” factor the owner wants.

Financing a Fixer-Upper: Construction-to-Permanent Mortgage Loans

To meet the needs of buyers who want to build, renovate or create their dream homes with the help of builders or general contractors, some regional banks are now offering construction-to-permanent mortgage loans directly to buyers. These loans finance both the construction phase of a project and the permanent mortgage in a single closing.

Construction-to-permanent loans offer distinct advantages for borrowers and builders. For example, buyers needn’t assume the full cost of the project at the start: Instead, they make interest-only payments through the construction phase.

For builders, construction-to-permanent loans mean they don’t need to finance the project or overburden credit lines and risk delays due to funding snafus. A series of disbursements from the lender ensure that expenses are met, workers are paid and subcontractors and materials are covered.

Additionally, since homebuyers can obtain financing at more favorable rates than builders, buyers reap financial rewards by financing the project, instead of having the builder do it. Construction-to-permanent loans also allow buyers to lock in a rate at the start of construction, which can be advantageous if rates are expected to rise over the course of construction. These savings can add up to thousands from the start.

Construction-to-permanent loans also offer other advantages — the simplicity and savings of a single closing. Buyers eliminate the customary “pass along” closing costs incurred when a builder finances labor and materials for a project, or the closing costs incurred with a home equity line of credit after traditionally purchasing and renovating a home.

[See: 11 Popular Home Updates That Are Worth the Cost.]

Furthermore, making interest-only payments during the construction phase (usually 6 to 12 months is allowed) gives buyers a respite from the full loan amount, as they pay interest that accrues only on incurred expenses. Best of all, a construction-to-permanent loan finances the purchase of the property and renovations.

When the project is complete, it automatically converts to a fixed-rate, permanent mortgage with principal and interest, just like a traditional mortgage.

Qualifying for a Construction-to-Permanent Mortgage Loan

While regional banks vary in how they qualify buyers for construction-to-permanent loans, some guidelines are commonplace. For example, loan amounts are determined by assessing the loan-to-value ratio, considering the acquisition cost (purchase of land plus cost of completing the project) or the appraised value of the property as completed. Other requirements may specify the type of home that qualifies for a construction-to-permanent mortgage.

Furthermore, because of the construction nature of the loan, additional documents must be provided by the general contractor prior to loan approval. These include:

— A final construction contract, signed by the buyer and the contractor

— A construction costs worksheet, provided by the bank, completed by the contractor, and signed by buyer and contractor

— A complete set of plans and specifications

— Certificates of general liability and workers compensation insurance coverage, as well as state licenses from the general contractor, or from subcontractors if the buyer act as his or her own general contractor

Note: In most cases, banks will only finance construction when handled by a professional general contractor. Buyers must have significant construction experience and/or be actively and gainfully employed in the building trades to act as their own general contractor.

For buyers interested in using a construction-to-permanent mortgage to renovate an existing home or to build from the ground up, hiring a builder with impeccable credentials and a proven record of successfully completing projects is essential.

Some banks will require signed lien waivers from the general contractor and from each and every subcontractor or supplier involved as the project progresses and disbursements are made. This system of checks and balances protects the buyer from future liability. Third-party inspections are also part of the process for many lenders to ensure satisfactory completion of all phases of work.

[See: 7 Things You Can Do to Win a Bidding War.]

For buyers who use a construction-to-permanent loan, when the project is complete and the home they envisioned has become a reality, the sense of accomplishment is tremendous. But that accomplishment is magnified when buyers look around and realize they’ve built exactly what they want, at a price they can live with for many years to come.

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How You Can Finance Construction on Your Home originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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