Construction Loans

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Topic Author
Mom 2 Groms
Posts: 43
Joined: Fri Jan 13, 2017 8:57 pm

Construction Loans

Post by Mom 2 Groms »

My husband and I are in the process of building a new custom home. We are having a hard time finding reasonable construction loans.

The last time we built a home, our construction loan was through a local bank. We bought the property in cash, and paid for some of the expenses of the build from our bank accounts, and paid for other items using the draw feature on the loan.

This time we interviewed a local bank (different bank & different area) and were surprised at what their process is like. The bank requires that we give them our down payment and they will hold it for us in the loan (earning no interest), and that the contractor can draw down the loan to pay for goods and services. The bank will draw down cash first and then it will take the form of an actual loan with a negative balance.

I'm not comfortable with this new process, especially in today's market. There are very long lead times on items and I don't want the bank controlling my cash and limiting when or how we can buy things.

I've looked at better.com and ally.com and neither offer construction loans.
-Are there any recommendations on providers that service construction loans? We do not have a relationship with a local bank since we recently moved to the area.
-What was your construction loan process like? If the bank held your down payment, did it impede the process or slow it down at all?
-We bought the land in cash and have around 50% down payment of the projected cost of the build.
retire4lyfe
Posts: 32
Joined: Sun Jul 01, 2018 9:08 pm

Re: Construction Loans

Post by retire4lyfe »

Mom 2 Groms wrote: Fri Jan 21, 2022 1:06 pm My husband and I are in the process of building a new custom home. We are having a hard time finding reasonable construction loans.

The last time we built a home, our construction loan was through a local bank. We bought the property in cash, and paid for some of the expenses of the build from our bank accounts, and paid for other items using the draw feature on the loan.

This time we interviewed a local bank (different bank & different area) and were surprised at what their process is like. The bank requires that we give them our down payment and they will hold it for us in the loan (earning no interest), and that the contractor can draw down the loan to pay for goods and services. The bank will draw down cash first and then it will take the form of an actual loan with a negative balance.

I'm not comfortable with this new process, especially in today's market. There are very long lead times on items and I don't want the bank controlling my cash and limiting when or how we can buy things.

I've looked at better.com and ally.com and neither offer construction loans.
-Are there any recommendations on providers that service construction loans? We do not have a relationship with a local bank since we recently moved to the area.
-What was your construction loan process like? If the bank held your down payment, did it impede the process or slow it down at all?
-We bought the land in cash and have around 50% down payment of the projected cost of the build.
We are in the process of completing our new construction build. We got a construction loan about 10 months ago and it was nothing like what you describe. We like you owned the land and had some cash to use outside the loan. The way ours works the contractor requests a draw, the bank sends out an inspector, we have a disbursement schedule we were given before finalizing the loan based on percentages for different things completed (2% for the foundation, 1% grading, etc.), the inspector tells the bank what was been completed and the draw is the total of all of the categories (a category doesn't have to be fully completed partials are allowed (50% of electrical rough in done for example). For the most part this worked well, the percentages were not perfect and I think the bank had them slanted toward the back end of the build as it was really tight until we got about 50% completed, but contractor was good in helping us carry it.

I would not want to give the bank the money to hold. With the supply chain issues we purchased things really early, lights and plumbing fixtures we bought 6-8 months early and stored them in the garage of our current home, appliances we had to order 8 months early and they took 9 to get here and we had to put down a sizeable deposit. If a bank had controlled the spending of our money we couldn't have purchased things early.

The regional bank we dealt with is in the southeast (FL, AL, GA, NC, SC, VA) if you are in the area PM me and I'll give you the name. They have been very good to work with and prompt with dispersing funds.
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Sandtrap
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Re: Construction Loans

Post by Sandtrap »

How many local and state wide banks and branches have you worked with so far?

Consider double checking between 2 branches of the same bank. Sometimes policies differ.

j :D
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mkc
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Re: Construction Loans

Post by mkc »

We did a construction loan in 2018/19.

Our bank did not hold our down payment, but our down payment funds were used for the first draws, up to the initial down payment amount. After that, draw requests were submitted to the bank, an inspection occurred, and the bank disbursed funds from the loan, up to the agreed loan amount. Interest was charged only on the total amount disbursed from the loan.

Any immediately-due change order payments were paid by us outside of the loan. Any remaining amount due/excess was settled at closing between us and the builder.
Topic Author
Mom 2 Groms
Posts: 43
Joined: Fri Jan 13, 2017 8:57 pm

Re: Construction Loans

Post by Mom 2 Groms »

Sandtrap wrote: Sat Jan 22, 2022 7:18 am How many local and state wide banks and branches have you worked with so far?

Consider double checking between 2 branches of the same bank. Sometimes policies differ.

j :D
We are busted! We only called one local bank that was recommended. We called a broker, but haven't received a call back. I'll try searching for banks on line and cold calling on monday.
Topic Author
Mom 2 Groms
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Joined: Fri Jan 13, 2017 8:57 pm

Re: Construction Loans

Post by Mom 2 Groms »

mkc wrote: Sat Jan 22, 2022 8:28 am We did a construction loan in 2018/19.

Our bank did not hold our down payment, but our down payment funds were used for the first draws, up to the initial down payment amount. After that, draw requests were submitted to the bank, an inspection occurred, and the bank disbursed funds from the loan, up to the agreed loan amount. Interest was charged only on the total amount disbursed from the loan.

Any immediately-due change order payments were paid by us outside of the loan. Any remaining amount due/excess was settled at closing between us and the builder.
Ideally, this is what we are looking for. Did you use a big bank, or a small local bank you had a relationship with?
mkc
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Re: Construction Loans

Post by mkc »

Mom 2 Groms wrote: Sat Jan 22, 2022 9:00 am
mkc wrote: Sat Jan 22, 2022 8:28 am We did a construction loan in 2018/19.

Our bank did not hold our down payment, but our down payment funds were used for the first draws, up to the initial down payment amount. After that, draw requests were submitted to the bank, an inspection occurred, and the bank disbursed funds from the loan, up to the agreed loan amount. Interest was charged only on the total amount disbursed from the loan.

Any immediately-due change order payments were paid by us outside of the loan. Any remaining amount due/excess was settled at closing between us and the builder.
Ideally, this is what we are looking for. Did you use a big bank, or a small local bank you had a relationship with?
Small local bank. No prior relationship.

We interviewed 2 different banks. Went with the one who didn't sell their loans (and had favorable rates). We did not interview a broker since we had bad experiences previously. There are no big bank branches in our area.
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