![]() ![]() ![]() Instead, the borrower is required to provide a budget, sometimes called a sources and uses statement, and the lender uses it as a way to track how much money has been advanced from each line item in the budget. Second, the lender doesn’t just give money to the borrower without any sort of accountability. The amount of money deposited in the interest reserve account is based on a calculation made by the lender that considers the loan amount, interest rate, and the estimated length of construction. Instead, the lender will advance a certain amount of money to pre-fund an “interest reserve” account, and funds from that account will be used to make the loan’s monthly interest payments until construction is complete. This provides the lender with some oversight of the construction process and also minimizes the amount of interest expense paid by the borrower. ![]() However, in order to fully understand the construction draw schedule, it is first necessary to understand several concepts related to construction lending.įirst, a construction loan is not fully advanced at the time of closing. The construction draw schedule determines how and when construction loan funds are distributed. It is distinguished by the fact that the loan balance starts at $0 and rises over time as funds are distributed, according to a predefined “draw schedule.” What is a Construction Draw Schedule? However, a commercial real estate construction loan is not like other loans. There is a start date, several interim milestones, and an end date when the property is complete and a certificate of occupancy has been issued. In some ways, a commercial real estate construction project is just like any other project. ![]()
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