Does home construction begin when a downpayment is made to the builder? If not when?

[hopwoo_j]

I borrowed money from a friend to build a home as a construction loan was very difficult to get and he was making very little interest on his funds.  Plan is to obtain regular mortgage after completion.  I began repaying him immediately, Jun 4, 2018.  However, with various delays with builder, HOA, Sewer District, City and County governments there was actually no dirt moved at home site in 2018.  I did however, make a down payment to the builder and to the sewer district and obtained permission letter from HOA.  In one real sense this could certainly be considered part of construction since actual onsite work can not begin without them being done. 

[KrisD · Accepted solution]

Yes, the process was started. The interest paid would be for construction of a home, HOWEVER as pointed out below, the loan would need to be secure by the property. The lender should issue a 1098. He also needs to claim the interest he receives as income. 

[edited 01/31/2019 I 4:43pm]

[Carl]

The interest is deductible only if the loan is a "secured" loan. That's indicated by either a checkmark in box 7 of the 1098 or listed collateral in box 8.

[hopwoo_j]

My friend did not send a 1098.