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New Construction Loan Issues

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  • 07-13-2010, 11:56 AM
    cavolo
    New Construction Loan Issues
    We own 21 acres of land. We recently were approved for a new construction loan that we will convert to a standard mortgage when we have received our occupancy permit. We have had several questionable issues with our bank.

    a. they increased our interest rate from 5 to 5.5 because the appraiser said there were no comparable properties in the area with 21 acres.

    b. we had monies set aside to pay for the well installation, porch and septic system. We were told that we had to put that money into escrow and that the bank would pay the contractors upon completion.

    c. we found out that the bank paid some of our closing costs out of the escrow fund, even though we had rolled our closing costs into our mortgage.

    Are these practices standard?

    thank you
  • 07-15-2010, 11:36 AM
    Mr. Knowitall
    Re: New Construction Loan Issues
    If you contracted to a higher rate because the comps didn't work out as anticipated, that's what you agreed to in your loan contract.

    I can't review your contracts from here to see what they say about escrowing funds for certain services. What did you agree to do? What difference does it make to you if you "set aside" the money in your own account or have it held in an escrow account?

    If you fully paid your closing costs and additional funds were removed from the escrow account to cover closing costs, presumably your bank will refund the money when you bring their error to their attention. If you did not fully pay your closing costs, your contract likely gives the bank the contractual right to obtain the money from your other account(s) including the escrow. What exactly happened, and what does your contract say?

    Your rights may be affected by the laws of your undisclosed state.
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