We Have Our Home-Construction Loan! How Do We Use It?

| 4/30/2015 3:33:00 PM

poured concrete basement walls

The Small Home, Big Decisions series follows Jennifer and her husband, Tyler, as they build a self-reliant homestead on a piece of country property in northeastern Kansas. The series will delve into questions that arise during their building process and the decisions they make along the way. The posts are a work in progress, written as their home-building adventure unfolds.

I’ll admit that signing our home construction loan gave me cold feet about this whole house-building process. Are we sure? Are we making the best decision? Are we right to commit to paying so much? Tyler calmly reminded me that we decided long ago that we’d need a home mortgage to realize our rural-living dreams. We have no bigger goal in life than to operate our homestead, and so the investment is definitely worth it. (And, now that we are contractually bound to the decision, we can leave these philosophical debates to the past ... )

While not necessarily riveting, I think anyone who takes out a construction loan to build a home would benefit from knowing how our process is set up. Tyler was familiar with the process and so he helped me understand as we went along, but without him, I would have been a bit lost.

We basically have a checking account of sorts, and a book of checks for that account that we’ll use to make payments from the loan to anyone who bills us for labor on our home construction. (Interesting tidbit: Each check is stamped on the back with a payment-in-full note to prevent any subcontractors from claiming lack of payment and, thus, placing a lien on the property. And, if you’re like me and not totally clear on what a property lien is, it basically is a legal claim on the property to secure payment of a debt.) At the end of each month, our contractor will send us a set of invoices we owe to any subcontractors who have completed work during that time period. We will approve the invoices and submit them to our loan officer, who will then make a loan disbursement (transfer funds into our loan's checking account). We write the checks for that month, and then wait for the next round to repeat the process. The construction loan will terminate at the end of one year from the finalization of the loan, which means we have until May 2016 to build our house. We’re really hoping it won’t be that long!

The initial withdrawal will be automatic in order to cover all sorts of random fees. The county, state, title company, and appraisal company all take what they see as their fair share before we even begin paying the contractor or subcontractor for any house-building work. It accounts to several thousand dollars.

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