If you self fund your construction it’s up to you, or an agent you hire, to inspect progress. Architects can usually be hired to serve in this capacity.

We did this (not in the US). Our contract specified the stages at which payments would be due, and how much. Our local council has a reasonably comprehensive permitting and inspection system, so we had a degree of confidence in that process to identify issues, but we also hired our own inspector at some key points. You would want to do something similar.

Umm, we did that. What's special? (oh, and we are far from loaded)

Strategery, did you do inspections yourself or hire someone?

Hello Lynn, we did inspections ourselves, although admittedly not often enough and without significant qualifications. Worked out by luck.

I'm now onboard that this should have been taken more seriously, A qualified *local* independent inspector is money well spent.

We have several in our development doing that and because of our builder, they have had multiple issues. Our bank actually saved us as they wouldn't let fund released until the builder absolutely met the goals.

If you do self fund, make sure to have a construction lawyer (not a RE lawyer) look over the contract before signing. If you're not working with a licensed architect, then get yourself a qualified home inspector to come in frequently to check on progress, especially before releasing funds.

If you decide to have your architect oversee construction make sure s/he knows something about construction. Some are great, many don't have a clue. The better ones will admit it and recommend a construction manager for that role.

Leon releases are important as well. We used a local title company to facilitate this process.

You can use or look for local construction draw inspection services just like the banks use when they are funding their projects. They will help verify progress and release payments based on requirements.

Banks provide several assurances that simply can't be found by a typical homeowner. A builder will likely act to maintain a good relationship with a local lender that he might now maintain with a cash buyer. Additionally, there are some state protections for loans that might apply such as single action or non-recourse that help protect you from fraudulent or insolvent builders.

In the end, the rather low cost of construction loans make them a pretty good idea for those who can work it out.

Best of luck

I agree about the low cost of loans right now compared to what investments are earning.

If an architect is competent enough to provide construction documents he/she should be able to oversee the work. You don't want an unskilled architect providing services of any kind.

Suddenly this is most of my client base.

We use clear progress identifiers for projects without loans just like bank inspectors. Understand that only a few lenders adequately vet contractors, so there is always some risk that the banks mitigate by requiring 20%+ equity or client funding. Get releases with each draw.

In 50 years I've only had a lender involved in one project: a 13 story condominium in St. Paul, MN. The owner and the builder used the same bank so when the owner refused to accept several inflated change orders, he was told by the bank to accept them.

Don't imagine a bank is interested in protecting you. You need someone on your side of the deal.

A bank shouldn't pressure you into accepting a charge just because they write the loan, and that is especially true if they hold both loans. That is a massive violation of agency, and while that may have happened on a regular basis before the CFPB, it shouldn't be happening now and it puts the bank in a pretty compromised situation. What you are describing is tantamount to fraud. I do know of one time when a bank offered an incredible financing package to someone on a multi-million dollar home because they held the loan on the development and they were concerned about recovery. When things went south the bank ended up eating the loan, the attorney fees, and had to refund the owner all monies. The client that I spoke with lived in the house for two years while this was going on and was awarded every mortgage, tax and insurance payment he made, because of that conflict of interest.

Next, this is a regional question. I don't know where the OP is and so things change but in my area, one bank does about 80% of all custom building loans and they have incredible sway over builders. With just a few phone calls completely derailed projects magically get back on track, now if you are building in an area that is much more urban that might not be the case. Whether or not a bank is going to go to bat for you over a dispute about a change order depends on the bank... But then again that is not the protection that I was speaking of.

I am sure that you all considered the various statutes available to home buyers and builders in all the states. For example, in my state a bank may not issue a judgment for collection greater than the original appraisal of the home. Other states have a one-action rule, in which a bank may pursue either a judgment against you or foreclose on the property but not both. Still other states have non-recourse laws in which loans secured by a home are limited to only foreclosure and no judgment may be sought for shortages. In many states this will work for construction loans and in others they may not.

The protection offered by banks and mortgages is the one against a catastrophic problem. Your house encounters a problem such that it only makes sense to walk away from it. Or your builder absconds with most of your funds, and doesn't pay any subs, etc. While these events are rare, they are not unheard of and every populated area has its fair share of these events.

I thought for a long time about exactly how to act, and in the end, I still decided to try to get a loan. The fact is that my house is in very poor condition and urgently needs repairs. The approximate amount is 1200-3000 US dollars. If I save so that I have such an amount, it will take about 5 years. Based on this, I concluded that it is best to take a loan from a reliable bank and pay it over 5 years. I did just that. My friend advised me on an excellent site in order to find out the rating of banks and I found out about one very popular bank at https://credit-10.com/fi/vivus-luotto/. As a result, in a year and a half I will be able to fully repay the loan. By the way, I have already completely finished the repair of the house!

Go to the local banks. Not the big national ones.