A borrower wants to use a construction-to-permanent loan to build a custom home on land they already own free and clear. During the construction phase, the borrower discovers significant rock formations requiring expensive excavation that will increase costs by $75,000. What is the most likely consequence?
Correct Answer
B) The borrower must obtain a separate loan or pay cash for the cost overrun
Construction loans typically have fixed loan amounts based on initial plans and appraisals. Cost overruns beyond the approved loan amount must be covered by the borrower through additional financing or cash, as lenders are not obligated to increase loan amounts for unforeseen construction costs.
Why This Is the Correct Answer
Construction loans typically have fixed loan amounts based on initial plans and appraisals. Cost overruns beyond the approved loan amount must be covered by the borrower through additional financing or cash, as lenders are not obligated to increase loan amounts for unforeseen construction costs.
More Origination Questions
A borrower has a construction-to-permanent loan with a 12-month construction phase. At month 10, construction is only 60% complete due to delays. What is the most likely outcome?
For a construction-to-permanent loan, when must the initial Closing Disclosure be provided for the construction phase?
During a refinance transaction, the appraiser determines that significant unpermitted additions were made to the property. The appraiser wants to discuss this with the MLO before finalizing the report. What should the MLO do?
An appraiser discovers that a property has significant foundation issues that were not disclosed. The appraiser reduces the property value by $25,000 and includes detailed comments about the structural problems. The loan officer is upset because this will kill the deal. Under AIR, the loan officer:
An MLO's compensation structure includes higher payments for certain loan products. When is it acceptable to recommend these higher-compensated products?
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