The construction loan was another hiccup in the building process for us. The first step is getting an appraisal. Our first bank (bank who we had the land loan with), would loan 80% of the appraised value. We started the appraisal process in February 2013. By the end of March, I still had not received the appraisal. After a lot of pushing, the loan officer sent it and much to my surprise, it was VERY low. Like, “we aren’t going to be able to build this house” low. It basically didn’t give us any credit for the steel building, and in turn did not leave us with much equity. We would have had to save an additional $20k in addition to our already large planned down payment amount.

So, I started calling banks. I happened to call a bank in town that was just awesome from the very first phone call. They said that they loan 85% of the value, which I knew would help us get closer to the amount we needed, even without a higher appraisal.

We met with the new bank and they agreed that the first appraisal was very low for the land worth, building and house. They submitted a new appraisal and it came back $20k higher than the first. That combined with loaning an extra 5% put us exactly where we needed to be. We were finally going to build the house!

Appraisal Summary:

– Appraises 85% of value (land+building+house plans)

– Uses comparables to other properties in the area

– Calculation (numbers used as examples):

* Appraised value= $100k

* 85%= $85k (amount they will loan)

* Cost to build house: $70k

* Amount owed on land: $25k

_______________________________________________

= $10k down payment

For our construction loan, our down payment does not need to be paid until the end of construction. Basically, once the builder has drawn all of the money in the construction loan, we will start paying the builder.

We are charged interest monthly based on the money that has been drawn from the account.

The construction loan is for 9 months, but we expect to be finished well before that (even with delays that we have experienced)

I cannot say enough about how great bank #2 was. If you are in my area and looking for a great bank, I would happy to give you the name.