construction deposit and bank terms
3 years ago
last modified: 3 years ago
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Construction Loan contract question - deposit required?
Comments (8)I have issues with the EXPLANATION your builder tried to give you regarding the 5% deposit he is asking you to pay to him. He says this provides the bank with extra security... HUH? How can your giving extra money to the builder possibly make the bank more secure???? Yes, banks want you to have skin in the game but I suspect that bank would much rather have that extra 5% of yours in a deposit account in their bank ready to pay out to builder once he has earned it than in builder's pocket before builder has even broken ground. And, it actually sounds like the 5% is going to have to come out of your loan amount rather than out of your pocket now. If so, what builder is actually asking for is a 5% draw from the bank before he ever does any work. NO WAY! The last thing banker's want is for builders to get any of bank's money BEFORE they earn it. Getting money upfront (before work is done) is how shyster builders operate. They are the ones who then disappear leaving you with a half-built house and not enough money left in the bank to finish it...which often forces the homeowner to walk away leaving bank owning the half-built home. If builder had said something like: "the 20% down is to purchase the land. You will then own it outright and I will give you the deed for it immediately. That means that, if you then decided you wanted to, you could walk away from me and go find someone else to build your house on the land. So I want an additional 5% deposit to ensure that you'll stay with me and let me build your house because otherwise I don't want to sell you the land." Well, that would have made sense and at least sounded honest. (That is, assuming the land without a house is actually worth that 20% and you could build the house you want for the remaining 80%.) But "pay me an additional 5% because it will give the bank more security" is, IMHO, pure flim-flam! And, if builder will attempt to flim-flam you at this point, he'll do the same thing repeatedly over-and-over again as the work progresses. Frankly, this is a red flag that should make you wonder if you even want to get into a contract with this guy at all. At the very least, ask your builder - in the presence of your banker - to explain to you EXACTLY how your putting more money into buider's pocket before he actually does any work for you is somehow going to make banker feel more secure. And then ask your banker if he agrees with builder's explanation....See MoreConstruction Loan contract question - deposit required?
Comments (5)A contract requires consideration to be valid. It can be as small as the $1 or $10 often used in deeds receipt of which is acknowledged in the deed. "I Joe Blah-blah hereby grant and convey to Frank Wats-his-name for $10 (receipt of which is hereby acknowledged) and other valuable considerations the land identified as ..." Has title to the land been conveyed to you? You should find a local RE attorney to look over everything and advise you. Builder's contracts are usually written by the builder's attorney to protect the builder, not the purchaser....See Moreearnest money deposit ?
Comments (30)Wow, You sellers are harsh. My husband and I would love to buy a house. We went to two banks and one mortgage broker and all have told us the same thing. We have very excellent credit. We don't have any savings. We plan a 100% financing with closing cost paid for by either the seller or Bank of American (new program). The banks and the mortgage broker are fine with that and they have been encouraging us to go ahead and find a house. We are looking at houses that are between $200-225K that all need work. Why are you sellers so reluctant and negative about buyers? From the looks of some of the houses I have seen, I think sellers should be thankful when they find someone willing to buy their house despite the repairs and cleaning needed. We really could not shell out more than $1,00K for earnest money. We still have to pay our $1,400 in rent til we move out, car loan of $290, eat, pay for moving expenses (around another $1,00K),etc. A mortgage in our price range will probably be a little less than what we have been paying in rent for the last 7 years or so and we are confident that we can continue to keep excellent credit. Some of you sellers sound very smug and self-serving. It is depressing. You are personalizing this discussion it is about a business transaction. Each party has their wants or needs, each party negotiates for the best position. From a selling perspective, larger deposit is better. From a buyer perspective smaller deposit is better. No smugness, self serving yes, it is in the seller's interest to serve themselves. No need for depression. Just keep looking, the worse the house, the better your advantage. Remember it is a business transaction....See MoreWhat's the norm for homebuilding - put a deposit down, or pay up front
Comments (6)This is dependent on the builder. We are currently building in a subdivision with a tract builder. However, we had to take out a construction loan due to the cost of the house. Our builder is a local builder and they don't want to take on the risk with higher valued homes, so they require a construction loan when the cost is over a certain threshold. To alleviate some of our risk, we sold our home first and are living in an apartment while our new home is being built. We paid the initial deposit as Patrick A stated (ours was $10k), then paid 10% down on our construction loan. Our builder takes 3 lump sum payments from the bank. We do not disperse the money. At the end our loan will convert to a mortgage. For most national builders (Lennar, for example), we would have only paid the initial deposit ($10k or so), and they would have financed the build. This is good financially for buyers, as it doesn't require the cash up front, or the monthly loan payments, but leaves the buyer with less control over the build as the builder has no vested interest in YOU as long as it's a good market for new homes....See More- 3 years ago
- 3 years ago
- 3 years agolast modified: 3 years ago
- 3 years ago
- 3 years agosharchitect thanked Jeffrey R. Grenz, General Contractor
- 3 years ago
- 3 years ago
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