How to Protect Yourself When Self-Financing a Custom Build?

5 days ago

One of the benefits of working with a lender for a construction loan is that they at least have some sort of basic checks and due diligence for validating and protecting 'their' investment at least until you close on it and it's no longer their problem or liability.

I know they send inspectors out to check on 'completeness' of phases (if not quality) before authorizing draws to the builder. (e.g. the slab is complete, or the framing is complete, etc...)

I also gather they do some basic checks and processing to validate a builder. E.g. is the builder financially sound. Are they paying their subs. Do they have proper insurance, or bonds or licenses. Etc.

If one were to self-finance - how does one apply similar due diligence in initiating a contract and project with a custom home builder?

For starters a bank account the builder can draw from but ONLY WITH YOUR APPROVAL that you fund (surprisingly only a minority of banks in our area offer such accounts)

What else? How do you do due diligence with a builder you are self-funding to build (vs using a construction loan)?

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