01 Apr 2022

How Do Progress Payments Work When Building?

Progress Payments and Construction Loans

In many ways, construction loans resemble lines of credit and credit cards. After an applicant submits the required documentation and application, lenders approve a loan amount. The funds sit until the project reaches each milestone. Lenders release progress payments at each milestone. In most cases, the builders expect to receive five payments per project. Thus, the work to meet the milestones as outlined in the initial plans.

Progress payments serve a few purposes and provide some benefits. For example, it keeps the builders motivated. The pending payments serve as motivation. It ensures that they don’t leave the project incomplete. For the borrower, they only accrue interest rate charges on the disbursed amount. Lenders usually approve a 50% to 70% loan-to-value ratio. However, the project can come under budget. If the borrower only requires 50% of the amount available to them, they can leave the rest untouched. Since the lender did not disperse it, the borrower does not owe it. More importantly, it does not accrue interest rate charges.

Mortgage House finances construction projects for owner-builders and investors. Our loan specialists outline potential loan terms for applicants. They receive the necessary documentation and application. Our proprietary tools help the loan specialists evaluate each application efficiently. 

In addition, we provide several online resources to help applicants prepare for the application process. For example, check out our car loan calculator with no strings attached. 

Progress Payments and Construction Loans Conclusion

For construction loans, lenders disburse progress payments instead of one lump sum. To understand the schedule, contact the Mortgage House loan specialists today.

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