Common Terms for Loans
Here are a few of the terms we discuss in this section of the course regarding owner builder loans.
Draws
Also called a construction draw. A draw is a request to have funds disbursed from a construction loan. An owner builder would submit a draw request to their lender when they need money to pay subcontractors or suppliers.
Draw Inspection
At different times during the construction of a home, the lender will send out an inspector to make sure the work is completed as stated in the draw request from the owner builder. For example, let's say the drywall trade is now finished and we submit a draw request for $10k to pay the company. The lender's inspector might come out to make sure the work is complete prior to giving the funds to the owner builder. Why? The lender wants to make sure the money they are paying out from the construction loan is going toward building the house.
Prime Rate
The rate that commercial banks charge their most credit worthy customers. The rates for mortgages, small business loans, and personal loans are based on prime. The Wall Street Journal publishes the prime rate daily.
Subject to Completion Appraised Value
An appraiser looks at the parcel number of the lot and reviews the house plans to determine what the value of the final completed house will be. This estimated value is called the subject to completion appraised value.
Debt to Income Ratio
A financial ratio used to measure a borrowers level of debt compared to income. The ratio is found by dividing total monthly debt payments by total gross monthly income. Debt payments are those for payments made on cars loans, student loans, personal loans, credit cards, and the mortgage payment for the new home once refinanced after completion.