Hi everyone.
Could you tell me about how construction morgadge works? We have in middle of building a house. We already have roof, rogh-in heating and cooling, pluming, electrical and inside framing. But Bank says we have only 55% of the construction is finished. If so we can draw only 55% of our construction fee. I think this 55% is strange. We are thinking to draywall very soon and after that, we need to paint the house and almost finish. If somebody know about what the persentage of the stage of construction. ie. lock-up stage, rogh-in, draywall stage.
Thanks,
Replies
the bank holds all the cards in the game and tends to be conservative in their view point of how much is done at each draw
here they hold back 10% of each draw for 45 days after completion to cover their buts in case of any leins
their estimate of your completed work is based on dollar value minus safety cushion
Technically it is a construction loan, not a mortgage.
When the loan is set up a schedule is agreed on between you and the bank. The schedule (called a "draw schedule") allows you to draw specific amounts of the loan at the completion of different stages of the loan. For example, it might say "25% upon completion of the foundation and the first floor deck; the foundation walls have been damp proofed and ready for backfill."
The draw schedule is part of the contract so both you and the bank should be following it, and it should not be a surprise to you. In all likelihood the bank is following the contract you signed.
Draw schedules are drawn up to protect the owner of the money (the bank). Money is released for completed work, otherwise there is no collateral for the loan and the bank is left hanging.
When you set up the loan you coordinate between the builder and the lender and negotiate terms with each so the process works. It's not hard to do, they do it all the time and it is a normal and proper thing. For example, lets say the contract with the builder says payment is $25,000 upon completion of the foundation. You have to have a contract with the bank to release $25,000 upon completion of the foundation. A few days before the builder is ready he tells you. You call the bank, they send out an inspector within a few days, and see that the work is done. The inspector tells the bank and they send you a check. You endorse the check over to the builder when he bills you for the item.
Remember the bank will only loan a portion of the cost, typically 80%, with you putting 20% down. So the contractor may want $25,000 for the foundation and the bank may release only $20,000. The other $5,000 is put in by you. That's how your money goes in. This is all thought out when you plan how you will build and finance your house. Then you sign the contracts and go.
Thank you for your advise.
The bank told us that we should borrow 75%of the value of our land at first and started to built the house after we get to some point we should swith to construction loan. We need about 220,000 dollars to built this house. So At first we borrowed 120000 dollars and we almost ready to put drywall. So the bank suggested to change to construction loan. We had inspection and inspector said it's only 55% of the house is complete. So the bank told us that we can't draw more money in this point because we already have 120000 borrowed money from the bank. So I just wonder how this persentage is working. At first our banker said that once we reach to Lock-up stage, we are 70%of the house is complete.So actually we haven't see our construction loan contract.
We are kind of stuck right now. We have to pay trade people but we don't have enough money to pay. We will somehow pay to people but it will be difficult to move on. Our house is built by ICF, but this inspector didn't know ICF. He said that we don't have insulation yet( We have, it is styrform, it is R24) so we are not ready for drywall. We had to built fireplace to have roof but the bank don't count fireplace. Bunk said that they don't count on Fireplace, back porch, front deck. But we have brick work in these places so we spend money for that.
I just want to know what is the persentage of lock-up stage and rough in stage.