Construction
Loan Mortgage Lending Practices...
Under a
construction loan,
also called an
interim loan, money
is advanced as new
home construction takes
place. For example,
a vacant lot owner
arranges to borrow
$60,000 to build a
house. The lender
does not advance all
$60,000 at once
because the value of
the collateral is
insufficient to
warrant that amount
until the house is
finished. Instead,
the lender will
parcel out the loan
as the building is
being constructed,
always holding a
portion until the
property is ready
for occupancy, or in
some cases actually
occupied. Some
lenders specialize
only in construction
loans and do not
want to wait 20 or
30 years to be
repaid. If so, it
will be necessary to
obtain a permanent
long-term mortgage
from another source
for the purpose of
repaying the
construction loan.
This is known as a
permanent commitment
or a take-out loan,
since it takes the
construction lender
out of the financial
picture when
construction is
completed and allows
him to recycle his
money into new
construction
projects.
Construction
Loan to Purchase
Money Mortgage
|
