Construction lender value overseeing contractor (new home, inspector, costs)

[indianrock]

We're going to be building a house in Whatcom County starting in June. We'll only need to borrow about one fifth of the cost ( lot is already owned ) so we're wondering if we should engage a construction lender early on. I'm mainly focused on the value the lender could bring in evaluating contractor bills as the checks go out. I'm thinking a construction lender would at least have some idea if the costs being billed for various portions of the construction were realistic or inflated.
Beyond that, we don't want to get 4/5 of the way through and be delayed because a lender wasn't engaged early enough.

[stedalski]

I've done construction inspections for lenders in the past. The lender may have an in-house staff person do it or subcontract out to a home inspector or appraiser. Here's how it worked (in my subcontracted experience): The lender provides a project cost breakdown to the inspector. Once a month, the inspector will visit the project and estimate the percentage completed of the line items that have been started or completed.

An early inspection report may be: Temporary power, 100%; Excavation, 100%; Foundation, 100%, Backfill, 50%. So if the contractor has submitted a bill to the lender for 100% of the temp power, excavation, foundation and backfill, they will get 100% of the amount on the cost breakdown for items fully completed, but only 50% of the line item amount for backfill in that month's draw request.

I used to provide progress photos of the items being paid on as well (don't know if that is still common practice). Construction materials that are dropped on site but not in place (a stack of lumber, for example), will not be paid by the lender until the materials are assembled or incorporated into the improvements.

I would agree that you should engage your lender at the beginning of the project. Some lenders may be resistant to lending on a home that is already under construction. That might not be in your case as you are covering all but 20% of the cost, but it's always best to check first.

I hope this is helpful. Good luck with your new home!

[indianrock]

Great information. Thanks !!