I am a homeowner planning a major home renovation project and after
talking with several contractors I have settled on one that I trust
and who checks out in terms of customer references, history of similar
work, supplier checks, etc. Due to cost of construction, I'm stuck
with a custom construction loan which has some nice features for me
(one closing, interest only payments during construction, an
attractive fixed interest rate after completion, etc), but (surprise!)
my contractor is having trouble with a couple of their policies.
First, the lender wants to perform an initial and a couple of progress
credit checks on the contractor's personal finances. They say that
this is to insure that funds are not being diverted from the project
to his personal accounts. The contractor says that he has nothing to
hide, but that his personal business is just that, and that it is only
reasonable for the lender to perform credit inspection on his fully
formed corporation but not his personal finances. He is protective of
his personal credit history and score.
Second, the lender will not allow draws on the loan prior to
completion of work. This means that there does not appear to be a
mechanism for the contractor to access funds prior to construction for
ordering materials or pre-paying his subs. He says 50% is typical to
mobilize them and lock them in for the project.
Who is being reasonable on these issues? Is the lender following
common practice? Are there any contractors out there who have run
into these missues, and if so did you walk away from the project or
were you able to work through them?