I have an 800 credit rating and the land I was going to build on that is completely paid off is worth $180,000. I was going to build a $280,000 house (2700 sq ft). I should have gotten the loan pretty easily but the appraiser the bank used compared the build to homes to 10 to 15 miles away. There are only a couple homes in the area that are recently constructed but they are much larger than my house plan. The appraiser didn't use those homes in the comparison. One was worth $500,000 and the same bank lent them the money 3 years ago. It's about 1/4 mile from my lot. The bank said the appraisal didn't compare homes in similar neighborhood so they would accept it. I would have gotten another appraisal but that would take 2 more weeks. I wouldn't be certain if that appraisal would bring up the same comparables.

I know the builder said he has lined up the contractors but I don't think they are sitting around waiting for my job. For instance, he said he will get two bids for the foundation after the excavation is complete. The only job he canceled was the excavation. How can he lined up the other contractors if we haven't put out bids for those projects yet.
I know I have to pay for his time but I think the $8000 was sufficient since we haven't start anything.

All he did was gave us referrals for loans and send in documents for the loans. He also referred me to soil testing and brick companies.

Interesting!

Another, let me, now that the horse has escaped from the barn, ask for advice.

Find an attny.

The contract should have been contingent upon financing, period.

Read and understand your contract.

You should have a start to finish contract with clear specifications for all fazes.

With specific start and finish dates.

Not this piece meal thing you have.

Do you have the cash to proceed with the build? If not, then you are in breach of contract. ''Just'' putting together everything needed for a custom build isn't a ''just''. It takes a heck of a lot of hours. Hours that could have been spent pursuing another project where he would have been fully compensated for his time. He could demand the entire profit that he would have expected to earn. He's settling for less than 10%.

And this is why you need more than 20% saved for a custom build. They cost more than they will appraise for, and you will have to make up the difference.

snoonyb is totally correct. You need to read your contract and consult an attorney. There should have been a financing contingency in your contract, if you didn't put that in your contract, legally the contractor may be entitled to what his profit would have been to build the house.

What a Pain!
How much did the appraisal come back at?

Are you still going to build this house at some point?

The GC wants 18 grand for doing NOTHING!! He made one phone call to the excavator. The paperwork he did is normal business practice....that comes with the territory. I'm sure he didn't turn down any business during this period. GC's can build numerous houses at the same time.
Holly.....I don't know where you get your info....all of it is incorrect except borrowing from family.

Sorry,

I would start from requesting itemized estimate for $10,000.

I am definitely contacting a lawyer to review the contract.

The appraisal came back as $390,000. At this time, I might have to wait to build later. I really like the design of the house and have already paid for the plan.

I thought the builder would send an itemized invoice through the mail last Thursday but it only shows 1 lump total. I'll contact him Tuesday for the itemized list.

I am truly thankful for everyone's comments. Hope you have a great holiday.

The attached link below is what I was hoping to build.

Here is a link that might be useful: Dream Home dashed away

Make the rquest for the itemization IN WRITING.

I have an 800 credit rating and the land I was going to build on that is completely paid off is worth $180,000. I was going to build a $280,000 house (2700 sq ft). I should have gotten the loan pretty easily but the appraiser the bank used compared the build to homes to 10 to 15 miles away.

The appraisal came back as $390,000.

Did you expect the appraisal to come back at $460,00 or more? The $70,000 is probably just the cost of building custom. Custom houses often cost more than what you would pay for an existing home. Looks like it is about 18% more to build custom. That sounds about right.

Having a credit score of 800 is one thing. It means you are credit worthy. But that still doesn't mean the bank is going to give you a loan. They want to make sure that they have collateral for what they are loaning - which is where they appraisal comes in. They don't want to loan $100k for a house only worth $50k. Also, having a high credit score doesn't mean you can actually afford the loan. Your loan to income ratio still needs to be below 40%. Somebody with an income of $100k is not going to qualify for a $1 mil loan. Either of those things could be relevant as to why you did not get the loan.

I'm also confused about the loan from dad. You said he was going to loan you 1/3 of the cost. Which in my estimates is about $93K. Where was the rest of the money ($187k) going to come from?

No matter what your credit score or the paid-for status of your land, you were depending upon securing financing for this build. The possibility existed that the bank would say NO.

Anytime you're dependent upon others for financing, you should write that into the contract as a contingency.

Options:
- Walk away, lose the money.
- Since you only lost the money your father was going to lend you, go back to the bank and see if they'll lend you that smaller amount /not the whole amount you were trying to borrow before.
- Try another lending institution.
- How much land do you have? Could you sell a portion of it to raise money to build the house?
- Could you go with a different, less expensive floor plan? Or perhaps leave off the garage for later, so it isn't financed in with the house?

This post was edited by MrsPete on Mon, May 26, 14 at 8:30

If the appraisal came back at 390,000, then the problem isnt the appraisal, right? 80% of 390 is 312,000. The house will only be 280 to build, right? So maybe the bank doesn't like using land as collateral of they want you to own the land plus have 20% of the actual build. (56K). Getting another appraisal is not going to solve your dilemma here. Find out what contingencies the bank has to approve the loan. Do you have 56K in a 401K that you can get a loan against? Then after the house is done, you can refi and pay back the 401K loan. Where does your fathers 1/3 come into play? Was the bank requiting 33% down? Or do you have 66% and needed the other 33% to do a cash build? Seems like it is time to get creative here ;)

"I am definitely contacting a lawyer to review the contract."

Wasn't your contract drawn up or reviewed by lawyer?

Thank you everyone for your suggestions.

I ignorantly didn't go to a lawyer to review the contract before signing. I thought it would be easy to secure a loan since I have 70K in liquid assets.

I will go to another bank and request a smaller loan. It is such a pain dealing with banks on construction loans and to make matters worst, the area I'm building in is not well established.

I'll contact the builder and see if I can delay the construction and not lose the deposit.

Good luck to you.
At this point you should still take your contract to an atty for review. If you're going to continue with your build you need to understand what the scope of your contract includes, including timeline issues.
If you're going to bail on this build, you also should find out what your legal obligation is re this contract.

Understand that obtaining financing, even if you have enough liquid assets to build the whole house without financing, is a tough business right now. You should be prepared to look at more than one bank/credit union/ investment brokerage.
In the end we ended up financing our new build through an arm of our investment brokerage. After all the hoops etc it just made more sense for us.
And, our land, which we owned free and clear, did not count as part of our down payment, and the appraisal for new construction didn't come up to the cost of our build. So in the end we'll have 40% into our build. We could have compromised on a lot of things we wanted, or we could have bought existing, and gotten an 80% mortgage.
Point is you need to be persistent in getting financing, and you need to have an attorney review your contract.

Is the 180k for the land a 'lot' or allot of acres?

Something isn't right with this story. Most banks will count paid for land as part of your downpayment. Something about this build is too risky to the bank. Either the location, or the level to which the home is being built is wrong enough for them to put on much more stringent requirements. Or both. Building an upscale home surrounded by lower priced homes is one surefired way to have the home be appraised much lower than it would in a different location. And they don't want to get stuck with it if things fall through.