Understanding Entity Requirements in Construction Loans

Class Overview

In this class, we will be covering the content of the third page in the sponsor application in detail. If you haven't watched class one yet, please stop now and watch it before proceeding.

At our company, we believe that experience speaks volumes. That's why we've established specific criteria to ensure that the builders and investors we work with have a solid track record in the industry. To be approved with our company, a builder or investor must have completed projects totaling at least 30 doors in their career. A door refers to an individual unit within a completed project—whether it's a single-family home, duplex, or four-plex, each counts toward this total. This metric allows us to assess the builder's real-world experience.

Questions and Answers

1. 1. What is meant by a "door" in the context of our builder approval process?
   •    A) A single unit within a completed project
   •    B) A project consisting of multiple homes
   •    C) A building permit
   •    D) A completed street in a subdivision
   Answer: A) A single unit within a completed project
2. 
   2. Why do we prioritize the number of doors over traditional financial metrics?
   •    A) It provides a clearer picture of the builder's financial health.
   •    B) It ensures that builders have practical, hands-on experience.
   •    C) It simplifies the approval process.
   •    D) It aligns with industry standards.
   Answer: B) It ensures that builders have practical, hands-on experience.
3. 
   3. Which of the following would NOT count towards a builder's 30-door total?
   •    A) A single-family home built under the builder's entity
   •    B) A four-plex constructed by the builder
   •    C) A project where the builder was the general contractor but not part of the ownership entity
   •    D) A duplex built and currently owned by the builder
   Answer: C) A project where the builder was the general contractor but not part of the ownership entity
4. 
   4. What should you verify when assessing a general contractor's experience?
   •    A) The number of permits they have filed
   •    B) The financial stability of their business
   •    C) That the projects were completed under their ownership entity
   •    D) The size of the projects they have worked on
   Answer: C) That the projects were completed under their ownership entity
5. 
   5. Why is it important to know the builder's entities when assessing their track record?
   •    A) It helps identify the builder's financial backers.
   •    B) It ensures that the builder has legal ownership of the projects they claim.
   •    C) It is required for tax purposes.
   •    D) It simplifies the loan approval process.
   Answer: B) It ensures the builder has legal ownership of the projects they claim.

Conclusion

In this class, we detailed the importance of understanding and verifying a builder's or general contractor's entity requirements in the loan approval process. We discussed the concept of "doors" as a measure of experience, why we focus on practical experience over traditional financial metrics, and the necessity of verifying ownership entities. This thorough approach ensures that we partner with builders who have a proven track record of delivering quality projects.
If you have any questions or need further assistance, please reach out to your loan officer, account manager, or our operations team. Our director of operations can also help verify track records to ensure you're on the right path. Stay tuned for our next class on entity documentation.