Construction Loan contract question - deposit required?
We are having built our first custom home.
Currently, In the middle of contract negotiation & one item that we are not versed on is that the builder has asked for a 5% deposit towards the construction phase up front.
*** The exact quote from the builder was:
Yes, typically you will own the lot outright and have placed a deposit on the construction contract before we begin. For construction/perm loans, this provides the bank with additional security (holding a half-built house is even worse for a bank than holding a completed home). If your bank is OK with a different arrangement, I can be flexible."
We would be putting essentially 20% down already by purchasing the land from the builder & borrowing the other 80% of the total package cost from the bank.
Just not sure when this 5% comes into play when we are settling with a one time close & the 20% would be provided to the lender/builder then to use at they please.
1) This 5% requirement would put things @ 25% no?
2) Are we thinking about this incorrectly & that this is still part of our 20% down...
3) Is this just a case of the builder wanting some of that down payment up front (during contract phase) vs. getting at settlement a couple of month down the road all in a lump sum?
4) Is he really tacking on 5% on top of our 20% downpayment?
5)Is this industry practice or New banking guidelines in the new home environment?
Thanks in advance for any guidance & insights!