bry is right, I miscalculated the $112K infusion. The $544K should be the amount of the note, and regardless of what you paid for the lot, you need to spend all your money to get to that $544K number. bry's $12K additional is the correct figure.

Owning the lot free and clear is helping - but there's a shortfall between the $544K 80%, and the $580K cost to build. Your $24K reduces that gap, but the remaining $12K will close it.

Do as bry suggests and you should get cleared up. Good luck.

Jeremia, you said,

Our builder submitted the first draw ~$35k (for excavation, etc.) and 12 days later the bank finally responds to the title company saying they won't disperse any funds until the total cash value sits at $136,000 - meaning they want us to do another cashier's check for $112k.

I apologize if I am misreading your question (just sitting browsing at an airport terminal). To restate your question for my own edification and clarity: Does your lender count equity in your land towards your down payment obligation?

From what you described, your 20% down payment obligation amounts to $136,000. Your loan documents should have detailed how much of that $136,000 needs to be in cash. I have certainly heard of lenders counting equity in land towards the down payment obligation, but not every lender allows this. You would think the lender would have put a lien on your land title by now if they allowed this type of mechanism for your down payment.

I have no clue how these transactions work. I'm just surprised that a lender that allows non-cash down payments doesn't have the specific terms spelled out in the loan documents. Like others have suggested, it would be in your best interest to sit down with the lender and go over the terms of the down payment that is written in your loan document.

All the very best with your project.

Jeremia,

All that really matters is what the loan agreement stipulates in writing, less so what a rep or loan officer says. Again, good luck and I hope you find a resolution to your dilemma.

You paid $55K for your lot, and $57K for the adjoining lot which doesn't look to factor in the loan or appraised value. That now makes more sense mathematically. Added to your loan & cost likely is interest reserve, loan fees and closing fees. There might be a bank contingency. The interest reserve will be larger if the term is longer than 12 months. That would add up to your loan amount of $544K without any borrowing on the adjacent lot. If you're short of cash, you could resell the extra lot.

Jeremia-Who gave you the $112 extra number? The mortgage broker made a mistake in calculations.

Home Value= 680,000

Loan Value = 544,000

Cost to build Home =580,000

Less loan value =36,000

Already put down -24,000

Amount still to put down =12,000

• Total injected lot/land ($112k) + cashier's check of ($24k) = $136k (20% of $680k total) This is where the error in calculation is. You can't add your cost of the lots to calculate your 20%. Your lot equity is only $100,000. (Appraised value 680,000 less cost to build of 580,000 = 100,000. Again, the bank doesn't care how much the lots or the build costs...only that they are only on the hook for 80% of the Appraised value.

I have certainly heard of lenders counting equity in land towards the down payment obligation, but not every lender allows this.

Just to be clear, when you are building a house there is not really land equity. That disappears into the home equity when you build a house on the land. Most every lender will count converted equity in the house as cash down. I have never heard of a lender not letting you count the converted land equity as part of the LTV. In fact, I can't think how a lender would go about this.

Furthermore, we know the above is not the reason for the OP's problem, because 20% of a $580,000 loan isn't $136,000. Even were the bank to say that you needed 20% cash down, it would be of the loan amount and not the appraisal amount. Since the loan amount is $580,000, the total cash needed would be $116,000 and not $136,000. Assuming the OP hasn't left out any information this is just a bank error.

Our rep said the land was applied as equity/down payment but now are saying that it needs to be cash.

You need a better rep... Someone at the bank is messing up and your mortgage broker isn't very good at his job.

Either I'm misunderstanding the situation entirely, or people are making very bizarre assumptions that are ultimately unhelpful to Jeremia.

Unless Jeremia is mischaracterizing the problem, this is what he said:

"...12 days later the bank finally responds to the title company saying they won't disperse any funds until the total cash value sits at $136,000.."

The relevant point: The lender is not going to part with a single penny until it sees 136k from Jeremia (or 20% of the appraised value of 680k). The dollar amount of the loan is not the issue here. The issue is whether the borrower has met his down payment obligation - which Jeremia identified as $136k.

The question: What counts towards the 136k requirement? There seems to be confusion/disagreement on this point and it needs to be clarified with the lender. This is exactly why Jeremia will be best served reviewing the loan agreement with the lender to identify the areas of confusion/miscommunication, and address them.

Excited, speculative arithmetic from Bry911 et al. and advising Jeremia to send those calculations up the corporate chain hurt Jeremia more than they help.

That's all I'm going to say about this as it is pretty ridiculous for people here to make these recommendations without even seeing the loan agreement or giving Jeremia the opportunity to clarify the issue with the lender.

All the best.

Either I'm misunderstanding the situation entirely, or people are making very bizarre assumptions that are ultimately unhelpful to Jeremia.

I suspect you are misunderstanding.

Hello Kitty-You are misunderstanding our information. Jeremia hasn’t put the 20% down by any bank standards. The only problem with the calculation is using the purchase price of the land ($112,000). The lender is allowing Jeremia to use the land towards the 20% requirement...but that doesn’t mean the exact amount paid for the land. If the appraisal came in higher (likely due to the land appreciating, which it hasn’t had time to as he just bought it this summer), then he might not have to put any extra cash down. The problem is that his mortgage broker doesn’t know how to calculate how much he needs to give him 20% equity of the appraised value. Jeremia is short $12,000 equity based on the appraisal value of $680,000 with a build contract of $580,000. The $24,000 downpayment was incorrectly calculated as someone (the mortgage broker?) subtracted the land purchase price. If we look at the appraisal of $680,000* .80, we see that the bank will only cover $544,000. Since the build still costs $580,000, there is a cash shortage of $36,000. Jeremia paid $24,000 towards that shortage and has a remaining balance of $12,000. Since Jeremia is taking an $11,000 check to the builder, he should be able to turn in that receipt with an additional $1,000 to escrow and be good!

I believe Bry911 and others have it correct.

If the lender can not perform as the contract says they agreed too, and the OP will not or does not want to bring in the extra down payment, then it is time to bring in an attorney. Heck, the build has already started! How can they legally halt funds now?

Just as a point of clarity for anyone who finds this thread in the future when looking for answers, there is a reason that all banks let land equity get converted into house equity towards the loan rather than demanding all cash.

Construction loans vary a bit more than traditional mortgage loans, but they are still fairly standard. Which is why people who haven't read the loan documents can comment on them. A bank isn't going to hand you an 80% LTV loan and then demand that all 20% be in cash, and they do it for a very obvious reason. The buyer would just get a loan on the land equity to put in the deal which the bank would have to pay off and end up in the exact same position.

The idea of demanding an all cash down payment in this situation is ridiculous, and if anyone finds themselves in that situation, get another bank because the bank you are working with isn't just non-standard, it is stupid.

Look at OPs other posts. OP bought 2 pieces of land totaling $112K. The $55K piece of land has the home to be built and is contained in the loan and appraisal. The $57K piece likely is not in the loan and is a source of confusion. As far as the loan is concerned it may not exist.

This: ..."get another bank because the bank you are working with isn't just non-standard, it is stupid."

Clearly the bank rep saying there has to be an additional $112k cash brought to the table by the borrower has no idea what they are talking about. The error bry discusses is possible but there has to be a remedy for math errors. OR, worse yet, the bank is having it's own issues and is choosing to reduce it's risk inappropriately. I think its the former and not the latter.

The $55K piece of land has the home to be built and is contained in the loan and appraisal. The $57K piece likely is not in the loan and is a source of confusion.

I don't think your assessment is right because it makes the math more questionable rather than explanatory. However, it doesn't matter, since the OP never gets credit for the lot anyway. In the end, the house appraises for $680,000, so the amount they will loan towards home construction is 80% of $680,000 which is $544,000. The appraisal on the house will be an estimation for the mortgage when built and not for things that aren't wrapped into the lien. So assuming you are correct, which you could be, the bank still has an error in their calculation and the OP has another source of equity.

@bry911 You seem to have a lot of knowledge to provide the board. What I don’t understand is why you continue to write long winded replies and then delete the majority of what was said later on.

I have trouble keeping up with what was said vs what is active on the board after your edits.

The lot equity is 55K. The other lot is not a part of the loan.

When you get a construction loan, there are other costs to consider... at least seven other line items the owner is responsible for:

• Loan fees (usually 1.5-2%)
• Bank inspection fees
• Title, escrow fees
• Prepaid property taxes (likely one year)
• Prepaid homeowners insurance (one year min)
• Money set aside for interest payments, aka "interest reserve"
• Any contingency the lender requires

The lender will set aside or "reserve" loan proceeds for all of these costs and have the owner fund up front the balance needed to make sure the project is properly funded to complete, as their goal is to get this transferred over to a permanent mortgage.

A few lenders have a combined "construction to perm" program that minimizes up front loan fees.

Jeffrey, how do you know the second lot hasn't been included in the loan? I ask because IME the lenders will encumber as much as they can in construction loans. The lot(s) would be specified in the loan documentation so the OP would know if one or both lots were included in the valuation and in the loan.

"What I don’t understand is why you continue to write long winded replies and then delete the majority of what was said later on."

Most of my edits are for fat finger phone typos and rephrasing that clarifies the same point. My default writing style is academic and my attempts to avoid that style here sometimes leads to results that aren't clear as I want.

Rarely, I will delete a post when I just don't feel like fighting about stuff. I will usually only do that in the thirty minutes or so after I post it and not if it has been responded to. I am sorry that it makes it difficult for you to follow, but I am not going to apologize for avoiding confrontation that derails a thread.

"The lot equity is 55K. The other lot is not a part of the loan."

There is no lot equity in the construction loan. You can't simultaneously have equity in a house and equity in the lot the house is built on.

The OP is building a house for $580,000, it appraises for $680,000. His equity is $100,000. Whether he paid $55,000 or $550,000 for the lot doesn't matter.

As for the loan fees they are typically not included in the LTV on a purchase loan or construction loan. An 80% LTV loan will be for 80% of the purchase price plus loan fees.

"I was referring to your posts where you go on and on about your background and how intelligent you are and then delete it later."

First, I didn't claim to be intelligent and I don't particularly value intellect. Right now there is an intelligent person ruining their life while some idiot has created a life we can all appreciate. I think a bit differently than most people and I have trained my limited brain differently than most people. That is all.

I did delete the post you are referring to because my internet persona is very different from my real life persona. I wish to keep the two separate.

I fail to see how this is related to the OP's question and am unsure this discussion belongs here. It is specifically what I wanted to avoid.

This is getting off track a bit.

Jeremia-Do you already have a loan? Did you have a closing where you signed loan paperwork yet? If you give us the LOAN amount, we can figure this out really easy. The loan amount may have some fees added to it or the bank may expect you to bring in those extra closing fees.

But the bottom line, is, the loan will be no more than 80% of the appraised value, which you said was $680,000. Given your numbers, you do not have the necessary amount in escrow with the title company to build your $580,000 house.

lori,

Your questions regarding bry's post are irrelevant to the discussion, in fact, they are strange to say the least.

Most of us old timer from Gardenweb are familiar with Bry's background and achievements; we always appreciate his contributions in VARIOUS fields of study and expertise.

Jeffrey Grenz, cannot agree more. This is a conversation that needs to occur between the lender and Jeremia. Hopefully this is one gigantic miscommunication or misunderstanding, and Jeremia will be able to resolve his issue without any further capital injection.

"Hello Kitty-You are misunderstanding our information."
B Carey, thank you for the explanation again. I'm not challenging the accuracy of your arithmetic. I'm questioning the wisdom in promoting a possible explanation as the explanation. When the conversation shifts from "things that possibly explain the problem" to "this is the problem, take action by showing your lender this arithmetic", it crosses the line. A recommendation like that, in absence of complete details behind the loan agreement, is rarely helpful.

Jeremia, hope you get the issue resolved. I agree with Jeffrey Grenz, you should explore what the issues are with the lender. And I most definitely would not start by emailing the lender whatever arithmetic some people are trying to get you to send here. Very best to you.

Hello Kitty-I understand how you can question the wisdom of "guessing". However, the math does not add up. I can say with 100% certainty that Jeremiah does not yet have the required 20% equity. A bank will usually not give more than the lands purchase price when purchased recently towards a borrowers' equity...but they do not automatically give as much as the purchase price. The land cost has no bearing on the amount the house costs to build.

The bank will only lend up to the $544,000, which is 80% of the appraisal value (any extra closing costs MAY be added to that amount, but trying to keep it simple). The difference between the loan amount and the $580,000 to build the home is $36,000. Jeremia has only put $24,000 in escrow. Where is the additional $12,000 to complete the build going to come from? The bank wants it in escrow now in case the borrower can not come up with it in the next year.

Yes, everyone could have not "guessed" the answer...but how does that help the OP when he clearly has a confused mortgage broker?

Since the $136,000 cash can't be (mathematically) explained, it can be assumed that it was either a typographical error or the number came from the mortgage broker not understanding the underwriting department.

As for the land, the appraiser is giving the land a value of $100,000 with a $580,000 house on it for a total of $680,000. Another way to look at this is that the appraiser is giving the land a value of $112,000, but the house is getting $12,000 less in value due to upgraded finish selections.

If OP If the bank wanted 20% of the cost to build, then they would be asking for $116,000 in cash/escrow, not $136,000.

Hopefully Jeremia has this figured out by now.

Is anybody else reminded of that old math problem: 3 men go to a hotel and rent a room for $30 ($10 each, right? Oh, but the bellboy gets $2 and then each man only pays $9 for the room . . . ).

Not really helpful to this situation, but it’s kind of the same number manipulation that’s going on here because conclusions have been drawn which aren’t necessarily correct.

Ok, here’s my second piece of advice to the OP: it doesn’t matter what you paid for the lot(s). That money is gone. Forget it.

The only thing that matters is what the BANK says is the TOTAL FINISHED PROJECT valuation. They’ll loan you 80% of that. The other 20% you have to pony up. In cash.

"Yes, everyone could have not "guessed" the answer...but how does that help the OP when he clearly has a confused mortgage broker?"

B Carey, I would submit that promoting a speculative explanation, however plausible, as the explanation is even more counterproductive. There is clearly something amiss and no one is doubting this. Jeremia has already said as much. Jeremia will be best served by speaking with the lender to identify the issues first. I have no problem with people using this as a platform to showcase their knowledge of construction loans and educate other readers. But advising Jeremia to email the lender this set of numbers and that set of numbers crosses the line.

As a CPA and an Accounting and Finance professor who actually teaches a class on banking financial statements, let me say please stop insinuating that sending the basic formula for all construction loans up the chain is going to do damage. Your first post on this thread made it abundantly clear that you have no clue what you are talking about. For various market and regulatory reasons mortgage loans are pretty standardized. There is a little more leeway in portfolio loans but not that much.

Exactly what damage do you think emailing the basic formula that you can get out of any one of a dozen textbooks is going to do? The absolute worst thing that can happen is it will get corrected and sent back. At which point I will have actual data from someone who is also intimately familiar with the process to use.

What is being told to the OP by his rep doesn't work and isn't correct. Right now we have a game of telephone. I need real data.

It is possible that there is a complicated series of offsetting numbers that explain everything and the bank is right. However, in my experience math that works out perfectly in offsetting calcs is very rare. Additionally, an extra $100,000 over what the the standard construction loan is would be very rare, and means the OP needs to find another bank. Were this a $15,000 difference in math I wouldn't have the same conviction it is a mistake.

"What is being told to the OP by his rep doesn't work and isn't correct. Right now we have a game of telephone. I need real data."

Bry911, when you have a game of telephone, the first response is not sending numbers and formulas around, however basic they may be. As a reasonable person with a bit of common sense, let me say please stop insinuating this is the right course of action. Jeremia should talk to the lender and explore what the issues are. Period.

Thanks for sharing your life story. I'm sure your curriculum vitae is impressive. All the best.

"As a reasonable person with a bit of common sense, let me say please stop insinuating this is the right course of action."

I didn't insinuate at all.

"Jeremia should talk to the lender and explore what the issues are."

Yes, because thus far that has worked incredibly well... Jeremia talked to them and then came here, just as he has done before. So it hasn't worked yet but keep trying is your advice.

@ Jeffrey

Contingency money will not get funded into the loan. The OP might have to show contingency funds but never pay them to the bank as part of the loan. My gut reactuon is that would not be legal but I would have to look. Usually retirement funds even work for contingency monies.

@bry911 That hasn't been my experience.

Jeffrey, I’ve never seen a construction loan that would wrap a contingency into it. That always needed to be a separate cash fund. Do you build in an area where the homes routinely appraise for more than the cost to build? Because that is the only way that I could see how that could happen.

In a situation where the appraisal is less than the cost to build, the loan is already at the max it can be and still needs a cash infusion to get written. Unless you’re taking a second mortgage before the construction is even converted to a perm? And I don’t see how that wouldn’t also mess with your credit worthiness and LTV numbers.

Can you expound on the details?

Great. Just the right thing to do.

Jeremia-I’m glad you have a new bank. I would be surprised if they don’t come back and ask for more money ($12,000). Because the bank will only loan 80% of appraisal value $544,000. And your $24,000 you are putting in escrow plus the $544,000 comes to $568,000 cash to build the house. Unless your builder has changed the amount to build the house to $568,000, then where is the additional $12,000 to build the house coming from? The builder won’t take equity in your land as payment.

What you have right right now is simply an approval. They ran your credit, glances at the appraisal, and maybe reviewed your tax returns. The file still needs to go through underwriting. At least now, if this mortgage broker calls back and says “we need $12,000”, hopefully you will see why. The most important missing piece of the puzzle is how much is your loan (and how much of any of closing costs is included in that amount.)

Jeremia,

I'm sorry the first lender didn't work out for you. I'm encouraged you've found another option and I wish you a smoother path forward this time around!

Pre approval. Agree with B Carey.... plus they'll want reserves for interest, bank fees and a very high chance contingency.

If you're working through a mortgage broker, it depends on their experience in construction loans as you can see by the first lender. If you are working with a loan officer at a bank that regularly does construction loans chances are you will get closer to the real numbers with a lower body count.

Sophie - all I've been involved with since 2009 contained bank controlled contingency set asides.

Yes! I hope this works positively for you and you have clear sailing ahead! :-)

Jeremiah, glad to hear you went to another lender who will make things right and get your build back on. Great job. I don't believe even a single reply advised you to go talk to another lender!...

Glad this worked out for you all!

DUCK!! ^^^^^^ Incoming SPAM!!!!!!!!!!!

"take my current house on a mortgage"? is that like taking your house on a vacation?

Offshoring your fake reviews is a cost cutting item you should think twice about....

*YAWN*