SG
Answered
Illustrate by example the use of mortgage financing in the course of land development by each of the land developer, the builder who buys a lot on speculation that someone will buy the house he intends to build and from the perspective of a purchaser of such a home. Use of specific numbers is not required unless desired.
On Jul 19, 2024
The developer of the land would purchase the land by making a down payment to the vendor and obtaining the remainder of the price from a mortgage lender. Once a number of the vacant lots were ready for sale to builders, a builder would obtain a mortgage to finance the purchase of a lot and the cost of construction of a home. The initial advance to the builder would be sufficient to cover the cost of the lot and would be paid over to the developer and flow to the developer's lender in return for a partial discharge of the developer's mortgage, sufficient to clear the title to that lot. The builder's mortgage would go on title next. It would now be the first mortgage, and the builder would have the equity of redemption. As the house is built, the builder would receive further advances up to the face value of his mortgage. Once the home is finished and a purchaser is found, the proceeds of the purchaser's mortgage advance pay off the builder's mortgage, which is then discharged. The purchaser's mortgage then takes over as the first mortgage on the property.