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#1833606 - 07/17/13 03:06 PM Construction Loans
CSB98 Offline
Diamond Poster
Joined: Dec 2003
Posts: 1,337
Wisconsin
We are a WI bank so I'm trying to get some feedback from other WI banks. We have recently been doing more construction loans, which has never been our forte. We are running into some issues when it comes time for final draws and figuring out how much the borrower owes out of their own pocket.

My question to you is . . . how to do you normally handle your construction loans? Do you borrow up to a % of the appraisal amount or the construction costs? What if the borrower already owns the land? Do you require the borrower to provide their share (say 20%) first? If so, do you require them to deposit that into a bank account? I'm really looking for guidance on best practices. Any feedback you can give would be greatly appreciated.

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#1833872 - 07/17/13 11:23 PM Re: Construction Loans CSB98
Beagles22 Offline
Power Poster
Joined: Jan 2004
Posts: 3,626
State of confusion
Hi! We do lots of construction loans. We do 80% of the appraised value (of the completed property, land + improvements) and we do insist if they don't have the 20% equity in the land already that we advance their funds first. We don't insist they put the money into the savings account, we just have them turn in the paid receipts for what they paid for. Then we cover the rest on draws. Usually we have the title company handle it though, and they keep the records and do the inspections. Does that help?
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#1834020 - 07/18/13 02:24 PM Re: Construction Loans CSB98
CSB98 Offline
Diamond Poster
Joined: Dec 2003
Posts: 1,337
Wisconsin
Yes, this helps a great deal. That is pretty much what we have been doing, so good to know we're not off base.

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#2123841 - 03/27/17 07:32 PM Re: Construction Loans CSB98
CSB98 Offline
Diamond Poster
Joined: Dec 2003
Posts: 1,337
Wisconsin
How do you code a loan which is to do a substantial improvement on an existing dwelling? For example, we have had numerous large dollar requests for either extensive remodeling or add on large additions onto existing homes (e.g. $300,000 or greater). Do you treat this as a construction loan and use that verbiage in the note and/or mortgage? With large dollar loans like this even when it isn't for the initial construction of a property, we have been coding it as a construction note so that we can manage the draws through the title company. Any comments/thoughts on this?

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