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Highlights/ Requirements

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1. Minimum 2 Years Experience / Built 2 Similar Projects

This requirement is focused on the experience and track record of the builder:

  • 2 Years Experience: The builder should have at least 2 years of experience in construction or real estate development. This is to ensure that the builder has the necessary expertise and understanding of the industry.

  • Built 2 Similar Projects: In addition to having the experience, the builder should have successfully completed at least two projects that are similar in scope and complexity to the proposed project. This is a way for the lender to assess the builder's capability to successfully complete the project.

2. 7.5% Liquidity Requirement - Can Use Pre-existing Equity

This requirement relates to the financial stability and investment from the borrower:

  • 7.5% Liquidity Requirement: The builder must have liquid assets equivalent to at least 7.5% of the loan amount. Liquid assets could include cash, stocks, mutual funds, etc. This is to ensure that the builder has sufficient financial stability and is able to cover unexpected costs that might arise during the project.

  • Pre-existing Equity: The builder can meet the liquidity requirement through equity they already have in the project, such as the value of the land or developments that have already been done on the project. This means that they can use the value they have already created in the project to satisfy the liquidity requirement.

3. Interest Reserves and 7.5% Contingency Built into Loan - No Monthly Payments

This refers to the structure of the loan and how it addresses interest payments and unexpected costs:

  • Interest Reserves: The loan includes a reserve to cover the interest payments. This means that the builder doesn’t have to make monthly interest payments out of pocket; instead, a portion of the loan is set aside to cover the interest payments.

  • 7.5% Contingency: A contingency reserve equivalent to 7.5% of the loan amount is built into the loan. This is to cover unexpected costs that might arise during the project. The builder has the flexibility to use this contingency reserve as needed during the project.

  • No Monthly Payments: The builder is not required to make monthly payments towards the loan. The interest is covered by the interest reserve, and the principal will be repaid at the end of the loan term, potentially from the proceeds of selling the developed property or through some other means arranged between the lender and the borrower.

4. Vertical Funding Requires Permits In Hand

This requirement pertains to the regulatory prerequisites for vertical construction financing:

  • Permits in Hand: Before the lender provides funding for vertical construction, the builder must have all the necessary permits in place. This is to ensure that the project complies with all the regulatory requirements and that there won’t be any regulatory roadblocks once the construction starts. Having the necessary permits also indicates that the project has been well-planned and is ready to commence.

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