Construction Loan contract question - deposit required?

pbx2_gwApril 4, 2012

We are having built our first custom home.

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.

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.

This 5% requirement would put things @ 25% no?

Or am I thinking about this incorrectly & that it is still 20% down...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 it pleases.

Is this industry practice? or New banking guidelines in the new home environment?

Thanks in advance for any guidance & insights!

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berniek

Who is representing your interests in this transaction? Your agent, attorney or bank/lender? Dispursement of construction loans, where I am, usually requires an inspection and authorization by the lender.

    Bookmark   April 4, 2012 at 11:14AM
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brickeyee

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.

    Bookmark   April 4, 2012 at 11:47AM
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pbx2_gw

"Who is representing your interests in this transaction? Your agent, attorney or bank/lender? " - @ berniek:

>>> No one at the moment save for working with our lender & we have a note out to him regarding this addl 5% deposit on the contract.

"Has title to the land been conveyed to you? " - @ brickeyee:

>>> No not until we sit down & do the one time settlement.

    Bookmark   April 4, 2012 at 12:15PM
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kats_meow

You should ask in the building a home forum.

We were going to build (decided not to) and the contract of a couple of builders we looked at did want that kind of deposit. Our situation was different though as we already owned our land.

    Bookmark   April 4, 2012 at 1:15PM
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pbx2_gw

@ kats_meow. I didn't realize there was a building a home forum!

Heading over there now. Appreciate it!

    Bookmark   April 4, 2012 at 1:31PM
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