OT help with construction loan process

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I wanted to use that 20% to purchase big ticket lumber and foundation materials now.

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That's a hard no.

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.

Is it a one time close?

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.

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.

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.

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.

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.

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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.

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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.

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