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Old 12-22-2008, 08:56 AM
 
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Hi everyone. I need some advice on how construction loans work.

We spoke with a developer on Saturday who has some lots he wants to unload. He normally does high-end homes – like those that formerly would have been $1 million +, but he's going to put lower-priced homes on these lots to move them in the current market. It’s a great area, right up against the mountains, next to a canyon. It’s the kind of location I previously could not have afforded, but in the current market I can. I did some research with the city, and he is the legitimate developer for those lots, and he showed us some of the high-end homes he's built, so I feel good about his work. He says he's financially solid, but with so many builders having problems these days, I want to be careful.

This developer says he's willing to take out the construction loan if we pay a decent earnest money amount, or we can take out the loan. It seems to me that our risk is lower if he takes out the loan, because we’d only be risking a couple thousand in earnest money. But then again, I'd like to lock into the really low rates at present, because who knows what they'll be next summer. What options do you recommend in a situation like this? I want to simultaneously lock in to the low rates while protecting myself if he did run into financial trouble halfway through construction.
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