Residential Construction Loan Documents

Typical Construction Loan Documents | Download

Construction loan documents vary from state to state so it is important to use documents that are specific to the state where the construction is being done.

The most efficient way to get the correct legal forms is to purchase them from a company that sells the forms and guarantees their correctness. There are several legal form companies that offer this service. The links below will take you to a trusted legal form company.

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Purpose of Construction Loan Documents

Construction loan documents are meant to protect the owner by assuring that all funds are properly accounted for. Each participant in the construction process has a different interest and so the construction loan documents are designed to spell out how each participants interests will be handled.

Typically, the lender has a fiduciary responsibility to the borrower to assure that loan funds are properly disbursed. The lender must also protect its interests at the same time and thus a series of construction loan documents are used towards this end.

The Building Contractor - Builder

The contractor wants to get as much money as possible as the construction progresses. Since the loan fund is based on the cost to build and an appraisal of the value of the house as completed, the lender will take care to assure that each phase of construction is completed before additional funds are disbursed.

Construction Inspection - Draw Schedule

This is done with a construction inspection using a construction draw schedule that notes what has been completed. During the course of construction of house, there will be from five to eight construction progress inspections, depending on the size and cost of the house.

Construction Loan Documents

Construction loan documents begin with the loan documents which will include the note, the construction mortgage, a construction loan agreement, a draw schedule, and a notice of commencement.

The construction loan agreement is a three party document and represents what is expected of the lender, the builder and the owner.

Construction Perm Loan

Most construction loans are done as construction perm loans that convert to a permanent loan at the completion of construction and receipt of a Certificate of Occupancy. The interest rate during construction typically floats with a prime based index. The interest rate on the permanent loan is determined at the time the construction loan is converted to a permanent loan.

Construction Loan Draw Schedule

Sample Construction Loan Draw Schedule Form