Construction Loan Servicing Agreement

A construction loan servicing agreement is a legally binding contract between a lender and a borrower. This agreement is used to outline the terms and conditions of a loan for the construction of a building. It is a document that governs the relationship between the lender and the borrower throughout the construction process.

One of the primary components of a construction loan servicing agreement is the disbursement schedule. The disbursement schedule outlines how the loan proceeds will be disbursed throughout the construction process. Typically, loan funds are not disbursed in a lump sum payment. Instead, disbursements are made in stages as construction progress is made.

Another important component of a construction loan servicing agreement is the budget. The budget outlines how the loan proceeds will be used. It is important that the budget is realistic and accurately reflects the cost of the construction project. This is because the lender will use the budget to determine the loan amount that they are willing to offer.

The construction loan servicing agreement also outlines the interest rate and repayment terms of the loan. The interest rate is the cost of borrowing the money and is typically determined based on the borrower`s creditworthiness. The repayment terms outline how the loan will be repaid, including the loan term and the type of repayment schedule.

Finally, the construction loan servicing agreement outlines the roles and responsibilities of both the lender and borrower. The agreement spells out who is responsible for obtaining the necessary permits and approvals, who is responsible for hiring contractors and subcontractors, and who is responsible for ensuring compliance with all local and state building codes.

In conclusion, a construction loan servicing agreement is an essential document for anyone seeking financing for a construction project. It outlines the terms and conditions of the loan and governs the relationship between the lender and borrower throughout the construction process. It is important to carefully review and understand all aspects of the agreement before signing to ensure that both parties understand their obligations.