Ready to close and developer did not finish street improvement

[Zigner]

With a construction loan, the loan funds are paid to the builder. Payments are made by the builder, and received by the contractor, only for work that is performed by the contractor. The builder/borrower only pays interest on what is paid out, though. If nothing is paid out, there should be no interest.

Yes, I agree with this, as it is, essentially, what I said above

 

[quincy]

Yes, I agree with this, as it is, essentially, what I said above

Essentially, yes.

My puzzlement was why the $125 a day included interest, though. The contractor was paid and his work complete so there would not be a need to draw on the loan. And the project was not finalized so loan payments would not start.

I am actually confusing myself right now.

 

[Zigner]

Essentially, yes.

My puzzlement was why the $125 a day included interest, though. The contractor was paid and his work complete so there would not be a need to draw on the loan. And the project was not finalized so loan payments would not start.

A certain amount of the loan was used to pay out funds, thus that amount causes interest to accrue. It's quite possible that the "daily" interest amount is actually a "monthly" interest amount divided by 30.

 

[quincy]

A certain amount of the loan was used to pay out funds, thus that amount causes interest to accrue. It's quite possible that the "daily" interest amount is actually a "monthly" interest amount divided by 30.

I am drinking coffee now. It will make sense to me soon.

 

[LdiJ]

Generally with a construction loan you only pay interest on what’s paid out (e.g., work performed by the contractor). If the work has been completed and the contractor has been paid, what are you paying interest on?

I can understand your antsy-ness in getting the developer to finish the street so the city will grant final approval on the project so that your buyers can close. Again I suggest you speak to the developer and get a better completion date than “in a few weeks.” Ask him when the work is going to start. Get a firm start date, allowing for conditions outside the developer’s control (like adverse weather events).

You could also approach the city to add some pressure on the developer to finish the project.

You really have a hard time with the developers you work with, huh?

Apparently the OP is the builder. He had/has a construction loan to build the property. He was lent money to buy the materials and pay for the labor to build the house. He repays the loan with the proceeds of the sale when it closes. Interest rates on construction loans are often a bit high since they are short term loans. The OP is paying interest to the bank who lent the money to him for the construction loan. Therefore yes, it is quite believeable and normal that it is costing him what he says it is costing him.

 

[quincy]

Apparently the OP is the builder. He had/has a construction loan to build the property. He was lent money to buy the materials and pay for the labor to build the house. He repays the loan with the proceeds of the sale when it closes. Interest rates on construction loans are often a bit high since they are short term loans. The OP is paying interest to the bank who lent the money to him for the construction loan. Therefore yes, it is quite believeable and normal that it is costing him what he says it is costing him.

I understand and understood that, but Zigner addressed my actual question adequately.