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Construction Loan contract question - deposit required?

Posted by pbx2 (My Page) on
Wed, Apr 4, 12 at 10:46

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!


Follow-Up Postings:

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RE: Construction Loan contract question - deposit required?

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.


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RE: Construction Loan contract question - deposit required?

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.


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RE: Construction Loan contract question - deposit required?

"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.


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RE: Construction Loan contract question - deposit required?

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.


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RE: Construction Loan contract question - deposit required?

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

Heading over there now. Appreciate it!


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