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  • Loan Terms

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Terms You Should Know.

Total cost of construction including home, land, closing costs, interest, and construction-related items.

Insures against filed and unfilled liens. Obtained when project has started prior to closing.

The Conditions, Covenants, and Restrictions document is created by a developer for a specific subdivision. Each project in the development must adhere to its guidelines.

A document granted by a local government authority indicating the project meets all codes and regulations and is ready to be occupied.

A document that defines any modifications to the original plans, stating the nature of the change, its cost, and any changes to the previous time frame, and serving as a supplement to the original contract.
 

A building contract that has an estimated cost but allows for the actual expenses related to the completion of the project to be passed onto the homeowner.

A document signed by the contractor, subcontractor, or material supplier that acknowledges payment. Formally releases all rights to file a claim of nonpayment.

Perhaps building a contingency fund into the loan amount is a better way to handle any overages. Ask your lender to explain their policy on the use of contingency dollars.

Insurance that covers the project from theft, vandalism, weather, and defects. Usually provided by contractor but may be provided by borrower.
A single installment in the process of disbursement of construction loan funds.
An agreed-upon timetable that states loan fund amounts and frequency during construction.
A contract that states a fixed price for the home’s construction. Often includes allowances for specific items such as cabinetry, flooring, fixtures, landscaping, etc.
 
An inspection performed by the appraiser indicating the project was satisfactorily completed per plans and specifications.

Provided by title company. States that home is located within boundaries of the mortgaged property with no easements or encroachments present.

Provided by a registered land surveyor indicating the location of the structure on the mortgage property.
 
Costs for labor and materials during construction.
Interest Reserve is a dollar amount added to your loan to make your monthly interest payments during construction. During construction you actually make no monthly payments. At the end of construction, you owe more money because you have borrowed those monthly payments using the loan money. This feature is useful if you are selling your current home while living in your new home during construction.
 
Document filed in the county records claiming that money is owed for work or materials.
A document usually provided after payment is made that waives the right to file a lien.

A mechanic’s lien is a lien that may be filed against the title to your property by any contractor, subcontractor, or material supplier who has not received full payment for the work or materials provided. If the Lender is made aware of the filing, they may choose not to further disburse on your loan until the lien is released.

Example: $100,000 X 5% /12 = $417 for that month.

A change in loan terms, such as an extension, increase in loan amount, or rate change.
Percolation test performed to determine if soil conditions are acceptable for a septic tank system.
The phase of the loan following the construction phase during which the borrower makes payments according to the terms of the note.
 
Construction items included in the contract that have been pre-paid by the borrower.
 
A project in which the homeowner has a contract with a contractor to build a house.
 
Funds held until the home is complete and the final documents are issued.
 
Items that are not considered direct construction costs (such as design, engineering, financing, legal, etc.) and other construction-related expenses.
A home built for the sole purpose of being sold for profit.
 
Homes built on-site using traditional wood frame construction.
 
Enhancements or updates to the title policy (liens, etc.,) that would prevent the lender from having priority on the title.
 
Report ordered by the lender (if required) when draw requests are received to ensure that no liens have been placed against the property.
 
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Velit sociosqu purus enim pharetra sed sem at iaculis. Felis ridiculus adipiscing dignissim eros pellentesque mus vitae litora. Felis nullam tortor phasellus viverra ut arcu. Euismod magnis ante convallis vulputate odio augue sit pretium dapibus.