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OT help with construction loan process
Posted on 10/11/21 at 8:50 pm
Posted on 10/11/21 at 8:50 pm
About to make a construction loan. I know bank info will be needed. After I show what I have in my accounts, how long must I wait before I can purchase materials? I know I will have to come up with 20% of value of home. I wanted to use that 20% to purchase big ticket lumber and foundation materials now. Loan process will take 6-8 weeks. Lumber prices are starting to go up. Any chance they allow me to use my own money to get ahead?
This post was edited on 10/12/21 at 8:06 pm
Posted on 10/11/21 at 8:52 pm to shoelessjoe
quote:
I wanted to use that 20% to purchase big ticket lumber and foundation materials now.
That's a hard no.
Posted on 10/11/21 at 8:52 pm to shoelessjoe
You can pay yourself back with the construction loan.
Posted on 10/11/21 at 8:53 pm to shoelessjoe
For me personally, I was told to treat it like a regular closing. No big movement of money.
They may need proof of funds on day of.
Not a bank person though, just didn't want to frick up my construction loan standing so I asked the actual bank. Which is the only way you will get an answer.
They may need proof of funds on day of.
Not a bank person though, just didn't want to frick up my construction loan standing so I asked the actual bank. Which is the only way you will get an answer.
This post was edited on 10/11/21 at 8:55 pm
Posted on 10/11/21 at 8:59 pm to fightin tigers
quote:
Not a bank person though, just didn't want to frick up my construction loan standing so I asked the actual bank. Which is the only way you will get an answer.
Yeah talking to bank tomorrow. I want to get loan process started and then buy the things I want to save on. Just not sure if bank is ok with that but will ask tomorrow for all possibilities.
This post was edited on 10/11/21 at 9:02 pm
Posted on 10/11/21 at 10:24 pm to shoelessjoe
Is it a one time close?
Posted on 10/11/21 at 11:36 pm to shoelessjoe
My team lends money to commercial developers including home builders. We don’t lend to individuals… that said… no. You put your 20 down on the land. I’m not lending on materials until the work is in place … those things can walk off the job site. Think of it this way. After closing… you put up the work, the bank inspects then it funds.
We also do percentage of completion method. Not invoices. So if you’re over budget on a line item, you’re paying the difference then. Can’t do it off of invoices and the project goes over budget and you don’t have the money to finish after the loan is fully funded.
We also do percentage of completion method. Not invoices. So if you’re over budget on a line item, you’re paying the difference then. Can’t do it off of invoices and the project goes over budget and you don’t have the money to finish after the loan is fully funded.
Posted on 10/12/21 at 1:07 am to dallasaggie
The materials will be stored at the warehouse by the supplier. Already talked about that to them. So if I have say 115k which is over 20% of total cost of home plus I own the land, I am not allowed to use the 20% I already have, to purchase materials and have them stored at warehouse until loan is finalized? I am only talking for about 6-8 weeks before I am ready to start. Materials are already at warehouse waiting for me to say bring them builders are here. Not like it will be stolen or walking off.
This post was edited on 10/12/21 at 1:13 am
Posted on 10/12/21 at 1:08 am to Pvt Hudson
quote:
Is it a one time close?
It’s a construction loan for a new home build then a mortgage.
Posted on 10/12/21 at 7:26 am to shoelessjoe
We just won’t ups til the work is in place. I work for a national bank. Maybe you’ll get looser terms from a local bank or a loan officer who doesn’t understand risks involved. I went through the Great Recession, you’d never believe some of the shady shite I saw… thus best practices like money up front, funding when work was actually completed and in places, etc…. It just protects the bank more. Look at it from our side. Not saying anything about the quality of person you are.
That said, if the land is valued at 20 percent of the overall value - you shouldn’t have to come up with an additiona; 20 percent cash. That’s too much.
That said, if the land is valued at 20 percent of the overall value - you shouldn’t have to come up with an additiona; 20 percent cash. That’s too much.
Posted on 10/12/21 at 7:29 am to shoelessjoe
You can buy the materials upfront. Have the builder show the amount you paid for the materials as a credit on the contract or budget as a preconstruction deposit (like earnest money). Make sure it is a credit towards the cost to build and not a reduction to the price.
It will count towards your down payment at closing - as should any equity you have in the land.
It will count towards your down payment at closing - as should any equity you have in the land.
Posted on 10/12/21 at 8:09 pm to Pvt Hudson
So how does the construction loan work? Do I have to give the bank 20% of total loan upfront?
Talked to bank today but I was told not to pay for things upfront. Sounds like they want me to use the funds they are allowing me. Do I have to spend their 80% first? Then I get my 20% after? Someone please break it down like I’m 10. First time builder. I own the land and just sold my home that I also owned. Bank isn’t owed anything from me.
Talked to bank today but I was told not to pay for things upfront. Sounds like they want me to use the funds they are allowing me. Do I have to spend their 80% first? Then I get my 20% after? Someone please break it down like I’m 10. First time builder. I own the land and just sold my home that I also owned. Bank isn’t owed anything from me.
Posted on 10/12/21 at 9:18 pm to shoelessjoe
I’ve always had the understanding that they don’t want you to “get started” due to the potential for lien/title issues. The bank always wants to be the 1st in line and that gets complicated if there ends up being a lien thrown on the property due to payment or other dispute that occurred before their deed of trust is filed. But I’m not sure if there are differences from state to state.
Posted on 10/12/21 at 9:31 pm to shoelessjoe
It’s not hard. Get a loan. Let them put a lien on it. Don’t do any work prior to the lien. The terms are up to the bank. But if you own the land. Then they shouldn’t require any more equity. Then it’s just getting the build job started. We typically will do 8-12 draws for the property. For example ~ you may have.a pre construction draw (plans - permits) and then your first big draw will be foundation. Next big one would be framing, etc…
Posted on 10/12/21 at 9:33 pm to dallasaggie
Just remember draws are for work in place. So you would have already paid for it or are on some terms with the subcontractor (net 30). The bank may require lien releases but that depends on the bank and Stata.
Posted on 10/12/21 at 9:40 pm to shoelessjoe
Did the same thing 4 years ago. I owned the land and did a 1 time close. This is how it worked. Lets say the estimated cost to build the home that you show the bank on paper is 100,000. You plan on borrowing 80,000. The bank wants to hold the full cost to build the house, in case you walk or something happens. So you cut the bank a check for 20,000. Start building the house. When you submit the first draw, you get your money back. They won't start interest until you get the 20,000 back.
Posted on 10/13/21 at 6:40 am to TigerContractor95
quote:
Did the same thing 4 years ago. I owned the land and did a 1 time close. This is how it worked. Lets say the estimated cost to build the home that you show the bank on paper is 100,000. You plan on borrowing 80,000. The bank wants to hold the full cost to build the house, in case you walk or something happens. So you cut the bank a check for 20,000. Start building the house. When you submit the first draw, you get your money back. They won't start interest until you get the 20,000 back.
exactly. they are not letting you keep the 20% and hope you actually put it towardst eh house. they take it at closing and lend that back to you first and only release funds once work is complete.
it sucks but OP can not do what he is trying to do. told him this on H&G board.
Posted on 10/13/21 at 11:18 am to shoelessjoe
We typically get a contract and a budget from the builder that breaks down the contract price into draws. We’ll lend up to 85% of the cost to build plus land value.
If you need to bring additional money as down payment, we have you deposit it with us to be drawn out when the builder requests. Your expenses for materials would count towards those draws.
If you need to bring additional money as down payment, we have you deposit it with us to be drawn out when the builder requests. Your expenses for materials would count towards those draws.
Posted on 10/18/21 at 10:26 am to shoelessjoe
Construction money is controlled by the lender- You can go up to 95% LTV on construction and pay 4% interest only during construction. Reach out if you want more details username @gmail.com
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