Capital Absorption Risk · Debt service
Development and Construction Milestone Drawdowns and Fees
Definition
Loan or equity funds released in stages as construction reaches agreed milestones, together with the developer, lender, inspection, and draw fees charged along the way; each draw adds to the balance on which interest accrues. For residential mortgages, federal ability-to-repay rules do not apply to a loan to finance initial construction of a dwelling with a term of 12 months or less, or to a construction phase of 12 months or less of a construction-to-permanent loan[1].
Federal law
A market and contract term. No Act of Congress defines it; the federal laws below apply as described.
No Act of Congress listed.
Federal regulations
Rules issued by federal agencies under the laws above.
- Minimum standards for transactions secured by a dwelling (Regulation Z), 12 CFR 1026.43(a)(3) (Consumer Financial Protection Bureau). CFPB Regulation Z exemption from ability-to-repay rules for short-term construction loans and construction phases. Official text: govinfo.gov, U.S. Government Publishing Office.