New Construction Financing Flashcards by Jayne Night

The type of loan made to finance the construction of a new home or commercial building is called a:
A: Construction Loan
B: Conventional Loan
C: Subprime Loan
D: Hard Money Loan

A: Construction Loan

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pre-approval

The process in which a lender checks the buyer’s credit and confirms his or her ability to qualify for a mortgage of a specific loan amount for a particular period of time.

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If a buyer wants to buy a newly constructed home, what is the first most important thing to do?
A: Find A Builder
B: Get Pre-Approved For A Mortgage
C: Buy A Lot
D: Get Plans For The Home They Want To Build

B: Get Pre-Approved For A Mortgage

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construction loan

The type of loan made to finance the construction of a new home or commercial building.

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down payments in a construction loan

Lenders often require the buyer to put more money down than with conventional property purchasing, perhaps 20%. If the buyer owns a lot that will be built on, that lot can be used as
equity towards the loan.

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builder’s license

Ensure that the builder has the license required to build in Utah as part of being sure that they are a reputable company.

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When a borrower choose to finance the construction of their new home through one loan that converts to permanent financing when the construction project is complete is called a:
A: One-Time Close
B: Interest-Only Loan
C: Take-Out Loan
D: Home Equity Line Of Credit

A: One-Time Close

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The permanent loan the borrower gets is also referred to as a:
A: One-Time Close
B: Interest-Only Loan
C: Take-Out Loan
D: Home Equity Line Of Credit

C: Take-Out Loan

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If you are working with a buyer that just bought a lot that they want to build on, what would be the type(s) of construction loans that they could use?
A: Regular Construction Loan
B: One-Time Close
C: Conventional Loan
D: All Of The Above

D: All Of The Above

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When a builder is using his own construction lines to build a New Home, what type of loan does the borrower need to get?
A: Conventional Loan
B: FHA Or VA Loan
C: Take-Out Loan
D: All Of The Above

D: All Of The Above

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construction loan draw

When the builder has completed certain portions of construction and proven that it is being built to code, this is the request for more money from the loan to continue construction. Multiple draws can be done during construction.

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regular construction

A construction loan in which the builder already has credit lines, blueprints, and plans to build in a certain area, such as a subdivision. Financing for construction is straightforward; the builder often gets the construction loan and works through that
on their end instead of the buyer’s.

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construct to perm

A construction loan in which the buyer already owns the lot and wants to build on it. The down payment needed is based on the value of the lot. The lender works to approve the buyer for permanent financing but begins with construction financing before refinancing it into a mortgage. The lender vets the builder to ensure that construction is not too big of a risk to lend money for. Also known as a “two-time close” , since the buyer must sign separately for the construction loan and permanent loan.

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one-time close

A construction loan in which approval is only done one time, is in the buyer’s name the entire time, and locks in the interest rate. This is often done when the buyer has their own lot; payment is all done up front.

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take-out loan

The permanent loan the borrower gets.

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What is a “Construction Timeline?”
A: Time To Close On The Construction Loan
B: Time To Close On The Construction Loan
C: Time To Break Ground And Start Construction
D: Break Down Of Work Over Various Stages

D: Break Down Of Work Over Various Stages

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new construction timeline

The breakdown of construction work over various stages. Closing on new construction can take a much longer time than closing on an existing home, since homes take a substantial amount of time to build. Approval for financing is done before ground is broken, but lenders usually do not want to pre-
approve more than 6 months out.

spec home

Short for “speculative”, a new home that is already built by a builder before a buyer agrees to buy it. The buyer only specifies details such as carpeting. Closing does not take as long for this type of house as it does for other new construction.

getting addenda to the lender

When addenda to the new home contract are agreed upon, they must be passed along to the lender to ensure that the cost is not going above how much the buyer is approved to borrow from the lender.

legal safeguards

Buyers pay a substantial deposit to the builder to ensure that the buyer is sufficiently serious about making the purchase and not going to back out once ground is broken. The deposit counts towards company so that it is pro tect ed for the buter
against misuse by the builder.

When the lender on a new construction loan disburses funds, it is also referred to as a:
A: Disbursement
B: Draw
C: Expense
D: Disbursal

B: Draw

Before a lender will release money to the builder, what must happen?
A: The Builder Must Sign The Draw Request That The Work Has Been Completed
B: The Borrower Must Sign A Release The Work Has Been Completed
C: The City Inspector Must Sign A Release The Work Is Done
D: The Appraiser Must Go Out And Sign The Draw Request That The Work Has Been Completed

D: The Appraiser Must Go Out And Sign The Draw Request That The Work Has Been Completed

subordination

When a builder owns a larger lot to be split up and built upon, it begins with a lien on the lot until it is paid for that prevents construction. Subordination is the process in which the builder releases the lien on the individual lot so that building can begin. No subordination occurs when the lot is already owned by the buyer, as it must be paid off with a construction loan.

date down endorsement

Lenders check construction each time a draw goes through, ensuring that subcontractors have all been paid and that funds have been used towards construction.

methods of disbursement

Lines of credit can be pulled upon as construction is completed. Each time a draw is done, construction is inspected to ensure that it is done correctly and that money is correctly used. Be sure that your buyer stays in contact with the builder and is not being taken advantage of by them.

mechanic's lien

A statutory lien that secures payment for labor or materials supplied for improving, repairing or maintaining real property. The subcontractors can put liens against the property to ensure that they are adequately paid when there is a dispute with the builder.

lien recovery fund

A fund set aside to ensure that subcontractors are paid, even when builders do not pay them as promised.

A statutory lien that secures payment for labor or materials supplied for improving, repairing or maintaining real property is called a: A: Tax Lien B: Mortgage Lien C: Mechanic’s Lien D: General Lien

C: Mechanic’s Lien

warranties offered by a builder

A one year "bumper to bumper" warranty is common for builders; if there are any problems on the home within the first year, the builder sends in subcontractors to correct the issue. This is standard for builders in the state of Utah. Some builders distinguish themselves with more extended warranties on foundations.

fixed

Home building costs that rarely change in cost by much and are charged at actual cost. For example, the cost of carpet, toilets, etc.

cost plus

An extra cost built into some home building costs, such as granite that might go up in price over the course of construction. This ensures that there are no surprises with obtaining enough financing to cover the cost of the home. Typically, there is a 10% extra cost built into construction to account for these changes in price. If the actual cost turns out to be less than was charged, that is adjusted at closing.

The person who issues the Certificate of Occupancy is the: A: Appraiser B: Underwriter C: General Contractor D: Building Inspector

D: Building Inspector

When it comes to new home construction buyer representation, which of the following statements are TRUE? A: The Buyer Is Best Served By Going Directly To The Builder B: The Buyer Will Get The Best Deal By Working With The Builder’s Agent C: There Is No Place For Buyer Representation In New Home Construction D: There Is A Tremendous Amount An Agent Can Do To Champion Their Buyer Client In New Home Construction

D: There Is A Tremendous Amount An Agent Can Do To Champion Their Buyer Client In New Home Construction

Before each draw is approved on a construction loan, who inspects the work to make certain the work has actually been completed: A: The Buyer B: The Real Estate Broker C: The Lender D: The Appraiser

C: The Lender

An involuntary lien on a property for tradespeople who perform subcontractor work is called a: A: Tax Lien B: Mortgage Lien C: Mechanic’s Lien D: General Lien

C: Mechanic’s Lien

Mechanic’s Liens can be filed by: A: Painters B: Carpenters C: Plumbers D: All Of The Above

D: All Of The Above

On a newly constructed home, a buyer gets to move in when: A: The Certificate Of Occupancy Has Been Issued B: Settlement Has Occurred C: Closing Has Occurred D: All Of The Above

D: All Of The Above

A “2-10 Builder’s Home Warranty” covers: A: 2 Years Of Structural, 10 Years Systems B: 2 Years Systems, 10 Years Structural C: 2 Years Unconditional, 10 Years Conditional D: 2 Years Conditional, 10 Years Unconditional

B: 2 Years Systems, 10 Years Structural

The agent who is sitting in the model home represents: A: Real Estate Professionals B: The Builder C: The Lender D: Consumers

B: The Builder

As a general rule, if real estate professionals who are representing buyers want to be compensated for new home construction buyer representation, they will need: A: A Signed Buyer Broker Agency Agreement With The Buyer B: To Accompany Their Buyer On The Buyer’s First Visit To The Model Home C: To Register With The Builder D: All Of The Above

D: All Of The Above

Your buyer clients, Jim and Sue have selected upgrades in excess of $20,000 over the contracted purchase price. Is this a problem? A: No, Jim And Sue’s Home The Will Appreciate Much Faster Than Other Homes In Their Subdivision B: Yes, When Jim And Sue Go To Close On Their Loan, The Sales Price May Exceed The Appraised Value C: No, The Mortgage Insurance Will Offset The Extra Expense D: Yes, All Of The Other Buyers In That Subdivision Will Expect The Same Upgrades

B: Yes, When Jim And Sue Go To Close On Their Loan, The Sales Price May Exceed The Appraised Value