Financing a Construction Loan - The Idiocy of Modern Banking

I don't want to spend a lot of time on this post, because it's something I'd rather forget.  But it was quite a saga.  In light of all the complaining I'm about to do below, I will give a shout out to Greenstone Farm Credit Services.  In fact, if you want to buy some vacant land in Michigan without paying all cash, they are pretty much your only option.  To get a loan from them, you have to buy shares in the company and become a member, after which you get paid back annual dividends.  You get a reliable loan agent who treats you like a person, with a local office.  Refreshing!

But it took us over 2 months to get our construction loan approved, when it could/should have only taken a few weeks at most.  Why?  I'll explain - the process is something like this:



Step 0:  Get your finances analyzed, credit pulled, and get approved for X-amount of loan.  Ok, seems workable.

Step 1:  Get your home plan fully sorted out with a detailed building budget/expense.  Add 10% for expected over-budget amount.  Do you still owe on the vacant parcel of land?  Add in that amount of debt to get your total loan amount.  Then multiply this total amount by 0.8, as the bank will only finance 80% of a construction project, to minimize their risk.

Step 2:  Compare your building expense to how much you were approved for.  The difference between these amounts is what additional you'll need to bring to closing for your down payment (plus closing costs, which are substantial).  Could easily be more than 20% down in total.  Do you have this much to put down?  Good; proceed.  No?  Beg, borrow, sell all your stuff, try again.

Step 3:  Just when you're feeling good about your chances of getting the loan approved, they have to run it by a professional appraiser to make sure it will have the expected market value.  There is no home to appraise yet though, so they check out your piece of land, look at your home plans and specs, and then just arbitrarily compare this all to whatever they want to.  If the appraiser's expected market value comes in below your total loan amount, that sucks, and the bank will only then loan you 80% of THAT lower value.

Step 4:  Think about giving up on everything after the initial appraisal comes in too low.  Optional: you can then change your home plans to increase the projected appraisal value, and get into an iterative loop that gets you nowhere but costs lots of time and money.  Then, beg your bank to let you try a different appraiser.  Wait a ridiculous 4 weeks during prime building season for the 2nd appraisal to come back.  Magically, the 2nd appraisal is $90k higher than the first one, proving that neither appraiser has any f&*#ing clue what they are doing.  But the bank accepts it, mostly, and you can continue.

Step 5:  Get excited for your projected loan closing date, as this actually all seems possible!  Then, await repeated rounds of bad news.  Delays, confusion, cold-feet from the central office (your house is too.... weird), reductions in offered loan amount, complications.  Consider giving up again, but then naively press on.  Beg and borrow more, stretch everything out as far as it will possibly go.

Step 6:  Actually, finally, eventually close on your loan.  It may feel less like a celebration and more like a somber relief that the process is over.  Nonetheless, Congratulations!  You are now ready to start building - however winter is fast approaching.  Consider putting everything on hold again until spring, but then remember how badly you want to live in this new house.  Authorize the first huge payment to your builder and it's game ON.