Can we start construction, and then get a construction loan later?

January 21, 2011 by  

This is a bad idea for many reasons, but sometimes borrowers must start due to the permit process.  If this is the case, and you have to start grading, and maybe have to do the foundation, we would suggest a separate contract with the builder.  Contact a local office of First American, Fidelity or another big title company.  Tell them what you are doing.  Put grading, foundation, retaining walls, and utilities on a separate contract.  Obtain lien releases as instructed by the title company you’re going to use.  Finish work, pay everyone, and get lien releases signed.  File a notice of cessation of work, and expect to wait 30 to 60 days (check with title company) before getting a construction loan to build the house.  The best approach would be don’t go verticle if possible.

Certainly, it is better not to prestart at all.  Don’t even put up a fence or allow a porto-potty to be delivered. You create problems with potential mechanics liens and obtaining title insurance for the construction loan.  You will have even disqualified yourself from dealing with most construction lenders.  Some unwise borrowers have even begun construction, used up most of their reserves, charged up credit cards, and made themselves un-approvable because of credit scores and requirements for liquid reserves after close of escrow.

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