Buying partially finished house

atdevJanuary 18, 2011

Hi,

We are considering buying a partially finished house.

We have agreed upon a price with the current builder based on his existing plans that he has for finishing the house. A contract will be signed before moving forward further.

The builder currently has a line of credit with a local bank. I assume he stopped building due to the bank not wanting to lend out more money or to save on interest.

The builder has suggested that he could save on interest if we put part of our down payment with a title company and allow him to take disbursements on it. He said the advantage to this is it saves interest which he could split with us on a few upgrades and also saves time as the bank takes longer to approve draws.

Is this common? Does it pose unnecessary risks even if done through a title company? Other suggestions?

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larke

Yes. Talk to an RE lawyer today. I would not put my money in jeopardy with someone like that unless I knew them very, very well.

    Bookmark   January 18, 2011 at 10:13PM
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Billl

Run, do not walk, away from this. The builder is basically asking you to finance his construction.

The risk - the builder burns through the money in the account and doesn't finish your house. You lose this house and your down payment.

    Bookmark   January 19, 2011 at 8:38AM
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orv1

Happens this way all the time in custom building. Perhaps this builder builds a combination of custom and spec houses. A lot of reputable, honest, builders have been caught short in the housing downturn we're currently experiencing. I wouldn't jump to any conclusions until you've had the opportunity to check him out. Start with previous customers, his suppliers, banks, local HBA to name a few.

I personally would not hesitate a moment to put our last builder on our checking account. Not that I would do it that way, but I would trust him with it.

Having said that you should keep in mind there definitely are unscrupulous builders, although not as many as there was during the boom. Do your due diligence before signing anything, but don't miss out on a possible good thing just because of a few negative Nellies.

    Bookmark   January 20, 2011 at 2:24PM
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