getting paid

We are presently about 88 percent through the build. Our construction loan covers 61 percent of the build. Anyone want to guess how much interest we’ve paid on the home construction loan so far? What's that? Want a little time to think about it? That’s cool, that’s cool. I’ll wait.

(tap, tap, tap, tap...)

Alrightey then: If you guessed $400, you’d be right on the money (get it? “right” on the money! bwah ha ha!). 

What’s that? That can’t possibly be right? I hear ya. That sounds crazy, like sniffing-silicon-fumes-cause-I-been-sealing-all-the-cracks-(I-say-ALL-the-cracks!!!)-in-the-house crazy. But it’s the truth! And here’s why...

First off, we brought a fairly sizable hunk of cash to the build. Understandably, the bank wants you to spend that scratch first before you spend their money. Lowers their risk, you see. There’s also no interest on that money (the money we bring to the table). To bring our green to the deal, we had to put our bucks into an escrow-like account with the bank so the bank would know we weren’t spending it on something crazy like expensive toilet paper holders.

Secondly, the money goes to the builder in chunks. Early in the build, the builder had to submit with our and the bank’s approval the major completion phases of the house after which he could submit requests for reimbursement. Here is where you really want to make sure you are dealing with a financially-secure builder, otherwise he won’t be able to front the bucks to get things done. 

After the builder submits a request for reimbursement, we have to sign off the request (saying that, yes, he done did what he said he would done do) as does the bank. Before the bank signs off on the invoice, they verify that the invoiced work was completed. Once that’s done, the bank cuts a check to the builder. This whole process is done regardless of whether it’s our money or the bank’s money. Examples of major phases include the foundation, the framing, and the cladding. 

The builder didn’t start dipping into our construction loan until January. So far we’ve made two interest payments on that dip: $200 in February and $200 in March (another payment will be coming soon; it will be $400). Once the interior work is done, we’ll get hit with another invoice that will start acruing more interest, but so far the interest hit has not been bad!

There are other ways builders get reimbursed during a build, but this is how it has worked on our build. So far, it has worked out quite well!

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