Construction Loan DONE!

Good news today. We got our financing! Tomorrow we’re going to cut the builder a big fat check for his deposit. First order of business is to get permits from the city of Rogers. We’ve heard from both the architect and the builder that Rogers permitting is a cake-walk compared to other municipalities in Northwest Arkansas so no hold-ups expected there.

The builder informed me that he’s already given the heads-up to the dirt guy (I hope he’s named Joe and looks like David Spade). So we should be good to break ground in the next several days as long as the weather stays nice.

We had hoped to close on the loan late last week, but there was a stumbling block we hadn’t expected. A little thing called Builder’s Risk Insurance. We were pretty much blind-sided by the bank when they asked who was going to provide it. “What’s this and why have I never heard of it?” I kind of panicked. I learned something about myself that day. When I panic about the unknown, I Google and Google I did. It turns out Builder’s Risk insurance is pretty simple. It covers your losses if something happens to your house under construction and it covers your building materials for theft and damage. It’s a good idea to have it, actually, banks require you to have it.

My Googling convinced me that we needed to provide the coverage ourselves instead of letting the builder provide it because we were going to be in for the full construction cost whereas the builder is only in it up to the amount of any un-paid invoices – a month’s work – max. So before even consulting with the builder, I started working with my insurance agent on taking out a policy. It turns out the way they do it is through a full homeowner’s policy with endorsements for Builder’s Risk which seems excessive and expensive.

It wasn’t until a day later that I called the builder and mentioned we’re figuring out insurance (protecting my interests, not his, right?). It was then, he let me know that he already has it covered and it’s built-in to the “general conditions” line item in his bid. So there I was, stressed out about the situation scrambling to take care of it, worried about the additional cost, and it was already covered. I made the mistake of not being open with the builder. The first call I made should have been to him.

But what about protecting my interests and not the builder’s? If you think about it, our interests are pretty closely aligned. If the house burns down, he doesn’t get his final payment which is at least half of his profit. Also, the bank kind of trumps everyone’s interests because they’re the ones actually footing the bill. They and their stack of lawyers no doubt have structured everything to cover their losses so providing coverage ourselves doesn’t really make sense.

So last week I learned my lesson about always being open with the people you’re working with.

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