Construction loan - what happens if I lose my job halfway through?

Hi there,

I'm currently researching the details for my first demolition/subdivision construction project. I'm trying to figure out what would happen in the worst case scenario that I lost my job partway through construction.

Scenario:
Bank loans me money for a construction project. They use my current income to assess my borrowing capacity. However, several months into building I lose my job and my new job doesn't pay as well. The builders are paid in stages and still have several months to go to finishing construction. I'm able to pay the bank the interest repayments on the loan even with my new, lower paying job.

Question:
When can a bank pull out of our loan agreement? If they already agreed to go ahead based on my previous income, can they opt out of the loan if my new income doesn't satisfy their borrowing criteria?


Thank you,
L

 

Once it's all approved and settled, they won't recheck your income so it's all good. But if you think there's a high risk of the above happening, I'd suggest having some decent risk management in place.

 

Thanks Jess. I don't think there's a high risk of it, just want to be aware of what would happen if it did happen.

 

I am not sure without reading a lender's agreement but would think that as the settlement of the loan occurs before they start paying out the loan, in stages, they would be contractually bound to continue paying the loan instalment payments tot he builder - assuming no fraud involved.

But seek your own legal advice before signing docs or committing to build.

 

In practical terms once the loan is approved and first progress payment made, they generally don't go back reassessing the ability to afford the loan.

There's no doubt T&C's hidden away which give the lender the right to at any time/call in the loan - but if in the scenario the loan was being paid on time without issue I doubt it would get to that point unless a red flag was raised.

 

Will they - no (so long as you don't default, etc). Can they - maybe (legal question). Incentives are for them not to either.

 

Thank you everyone for your thoughtful replies. Very helpful.