Construction loans are requested by clients who have purchased or will purchase a property, either with a structure already on the property or vacant, and who wish to renovation or build. Typically, the client will provide drawings and an appraisal in order for the lender to ascertain the amount of the loan.
It should be noted that once the client is approved for a construction loan, the funds are not advanced in one lump sum. Rather, funds are advanced in draws depending on defined criteria of completion. For example, 20% may be advanced to the client upon closing, another 25% may be advanced when the foundation is laid, another 25% when the project is framed and another draw when the roof is completed. Sometimes an inspection by the lender or the lender’s representative is required after each stage is completed.
The number and value of each draw will be agreed upon by the lender and the borrower.
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