So it's May 2015 and I am just joining this conversation with the same plans to build with plenty of cash to do it without compromising our retirement and other investments. I have already gained some new insights by reading everyone's comments here so thank you! We also have our current house almost paid off which will be used to recoup some of our costs when it sells. And like several of you, we don't want to sell and move two times so we'll wait until new construction is near completion. But something just keeps nagging me about having some kind of safeguard in case something happens along the way. We know and trust our builder, but hey, anything can happen expectantly along the way. So I Googled Beth's original headline and came across another blog that revealed something very reassuring to me. Everyone knows about construction-to-permanent loans, but how about just taking out the initial construction loan and then paying it off in full at the end with no permanent loan? The lender assumes responsibility for getting an accurate appraisal, inspections, approvals for builder draws and final title. A 12-month construction loan would involve miniscule interest costs for the peace of mind in return. And what say you? An inquiring mind wants to know!

bj We had a simialr siutation. We used up our cash on the first 2 draws plus a partial on the third (the bank paid the other part of draw 3). AFter that - all draws were paid by the bank. We chose this route to delay the interest payments on the contruction loan for as long as possible. We broke ground in September of last year - but our first significant payment of interest to the bank just started this month. That worked out best for us because we had big delays (remember to get a schedule!) and at least we weren't caught having to pay interest on the loan during this time. You could flip the strategy and use bank funds up early - but then you have interest payments earlier. And if you have a delay - you will be paying interest (stress meter is starting to rise!) Either way can work - just think about your cash flow as well as tax situation (maybe you need the write off). The mechanics are very simple. For the draws we paid from our cash - we wrote the builder a check. Get a receipt for the draw from the builder because the bank needs it as proof of payment before they will start paying draws from the money you are borrowing. When you do this - you might want to have your own inspection done prior to each draw to make sure all work has been done to code or do your own inspection. I chose to do my own inspection. Once you are through with your cash out - then the builder will make contact with the lender to say he is ready for the next draw. The lender will schedule an inspection - once complete - the draw will be paid. Don't expect these inpsections to be anything more than a quick look to make sure that the major pieces are in place. We decided to have an active role in the dispersement of the money (your lender should have a form that you must sign and the builder must sign that is an agreement on the disbursement method). An active role means that when the builder asks for the draw - the bank contacts me to see if it OK to send the money, even after the inspection is done. I also opted (this is on the disbursement form) to have the money deposited into our bank account. Then I pay the builder with a check. My builder does not like this arrangement - most won't. My banker advised me to do it since it gives me some level of control. I happen to like it. If you opt for the passive role, then the builder asks for a draw - bank sends out inspector - and then money is directly deposited into the builders account. You are notified of what is going on, but the entire transaction is done without you having to specifically approve of the draw disbursement. Hope this helps.

i agree with you conceptually about only investing in thing you believe in, or rather in things you can stomach as most investments and industries have a downside if you look hard enough. eventually you get to exploited workers and poisoned rivers and solid waste. i personally struggled with the payday investment i made. the return was high, but i did not want to be associated with it. i said no for about 6 months. over that six months i learned how they (where my money is now) did business. after i understood it i had a hard time thinking of it any differently than a bank. they both loan money based on ones ability to earn money and pay it back. the only difference is the duration and the size of the loan. a bank allows me to spend money i don't have on a credit card and then charges me 13-18% until i pay them back while they themselves are leveraged 10 to 1 on those dollars loaned. the payday place will only loan me money that will be covered in my NEXT paycheck and charge me a flat fee of $5 or $10 while they themselves have a dollar for every dollar they loan out. when i look at it like that i really had no problem with the payday place, but started to have them with the banks. the payday places are not dragging the economy down because of their recklessness. they are also not enslaving an entire generation by offering them credit they cannot pay back. there are people who use them recklessly, and it is real easy to point them out because they are the fringe. it is a little harder to point out the middle class suburbanite who is a slave to their credit card and bank because they get up and go to work each day and keep a nice yard but are living on credit. both industries lend money and both are technically guilty of charging people who don't have money. they are in business to make money, not give it away. in the end neither is good nor bad just as fire is neither good nor bad. the good or bad all depends on who uses it and how they use it. the payday places service a far less afluent and unsophisticated clientele and therefore gives them very little wiggle room to abuse the system. if they want to stay one paycheck behind for the rest of their lives, that is about all they can do. the bank will let me get decades behind because they assume i am responsible and won't let it come to that but do little to stop me and recently have even encouraged me to do so. in my mind it is a match compared to the bonfire. both can be abused, but the potential abuse of a credit card is far greater. but there may be other payday places that have different policies than where i invested. mind you i don't have equity in the payday place�"they borrowed money from me to lend. in short my money is on deposit to be lent out just as if i put it in a savings account for the bank to lend out on a credit card loan. the main difference is my rate of return is almost 10 times higher but not FDIC insured. the only thing i do struggle with is the 10% they charge for cashing checks. this is outrageous in my opinion. i can't understand why anybody would do that unless they were unable to cash it elsewhere and i won't speculate as to why. but in the end they have their reason and are paying a premium for it. and with that i leave it. cigarettes are another issue and i am totally with you. i feel the same way about other products as well most are not as overtly damaging, but their products do carry liability and they push them with abandon to those who are hurt by them. not just talking guns and alcohol. a few minutes watching saturday morning cartoons was an eyeopener to the type of products marketed to kids. slap a mcdonald's logo on a bucket of mud and i think my kids would want to eat it. a friend of mine who is militant about his hate for phillip-morris and smoking in general (i think he lost a parent to lung cancer) holds half his portfolio in tobacco stocks. he justification was that it "those people" are going to annoy him with their smoke and take his taxes in healthcare, they are going to pay him for it. an interesting take on moral investing practices, but for him it makes sense. i respect your desire to not follow my practice of investing in payday lending. we not only have to undderstand our investments, but repect if not love them. i do not love payday lending, and to be honest would rather be elsewhere, but for the time being it is a good place and i am no so morally apposed to money lending as to not take the opportunity. i do however own no bank stocks for obvious reasons, i think their model is risky. i also think they are on the more unethical side of business. they have laws and loopholes that allow them to do things that are illegal to any other company. id it because we need their services and that is what it takes, or is it because they have power to influence if not make laws that favor them? i think recent events have shown us it is a little of both. before i sound too anti-establishment, let me say i think financial institutions are important and necessary�"ie. banks, insurance companies, the US government, the FED, and even payday lenders. BUT they are in busniness to make themselves rich, not us. if you do not understand what they are doing, how they make money, or worse, what you are doing, they will take advantage of you. thus education. it is through education that you can see the smoke and mirrors they use to make you feel good about making them rich at your expense. one of the most ubiquitous is the home mortgage. i am emphatic that the most expensive ways to buy a house are in this order; cash, paid off early mortgage, continually refinanced mortgage, a 15-year note, a 30-year note, ARM, variable rate, interest only, and deferred interest-AKA sub-prime being the cheapest. that said, i don't like differed interest as it assumes the risk in the real estate market and if used by the uneducated or irresponsible it can (and has) blown up in the borrowers face. what does the bank want you to do? they love you to take out a 30 year and refinance every few years or pay it off early. if you are going to take it to term, they prefer you take out a 15-year because it makes them more money and that is why they have a cheaper rate to take it�"they need to give you incentive to do what benefits them and think you are getting the better end of the deal�"if it makes them more money, how can it also save you money and show up in two places at once? this all sounds like hericy i know. but where do we get our financial education from? our bank? alan greenspan has a nice quote about the variable interest only mortgage being the best deal out there if people only knew how to use it and the 30 year not serving its customers as the think. i will see if i can find it. the mortgage subject was perhaps the most eye-opening and influential education i ever had in finance. it is the lesson that taught me to see the whole equation and not look at a financial strategy in a vacuum. it taught me to understand finance on a macro economic level to understand how to best use products on a micro economic level. it is painful and feels like you brain is removed and turned around and put back in. but i assure you it is all true and useful information, but it requires the user to be responsible for their financial life and some are not willing to do this and for them it is not wise to have control. just as fire in the hands a of one is destructive and to another the opposite. what i am talking about is basic business finance�"in short figuring out the lost opportunity cost and the taking the greatest margin. if done properly with understanding risk is minimized and growth is maximized. some will refuse to believe, but that does not prove those strategies wrong. i myself do not practice whole-heartedly all the strategies i know an believe because of issues regarding timing, my own laziness or whatever. this does not mean i don't acknowledge their strengths or potential. but it serves me to understand alternatives. there are many i have encountered on this forum and in other places who flat out throw up a wall and won't even try to understand that there are several strategies to use in every situation and they all have merits. my beef is with those who claim merits that are not truly there or ignore others. those who emotionally attach themselves to dogma that was sold to them without trying to understand. i have been guilty of this and still am at times and it only hurts myself. when i have a few hours to spend with a calculator, i will start a new thread and actually run the numbers on the most popular mortgage products side-by-side including paying cash. i will treat all as equals. it is amazing how different the outcome is from popular beliefs, but if you look at who is selling the mortgages and the information i guess it is not shocking. it won't prove anything other than which is the most expensive in terms of money and what risks are inherent in each scenario. the individual would have to choose which is best for them. the problem is that most choose the wrong thing for what they claim to want. if you know how they each work you can choose more appropriately for your goals whatever they may be.

Yes to your own RE attorney. Yes to a methodology of lien release tracking. Yes to setting up a construction draw schedule even if you don't have a loan. Your builder should know when he needs draws and design a schedule for you. Planning is everything. Know what you want and stick to it. Strangely enough, once the foundation is dug, a lot of risk diminishes. If there are no rocks or water, your foundation costs drop off. Shop around for other lenders. You only need a construction loan. Not a construction to perm. They are different. It's good to have a line of credit in your back pocket when building. I suggest you explore a home equity line of credit on your current home. If you need it, you have it. If you don't use it, you were prepared. Lenders will love you. They love to lend to people who don't need the money. And, they love lending to people who already own the land. Expect and prepare for cost overruns. Construction lending is high risk and you are lowest level of risk of a high risk endeavor. Make the lenders compete for your business.