New York Real Estate Salesperson ExaminationFinancingMedium
A developer is planning to construct a new residential subdivision and needs financing that will cover the cost of acquiring the land, installing infrastructure like roads and utilities, and building the homes. What type of loan is best suited for this comprehensive project?
- ATakeout loan
- BBridge loan
- CBlanket mortgage
- DConstruction loan
Show answer & explanationAnswer & explanation
Correct answer: C. Blanket mortgage
A blanket mortgage covers multiple parcels of land (e.g., individual lots in a subdivision) under one loan. It typically includes a 'partial release clause' allowing individual lots to be sold as homes are completed, which is ideal for developers.
Why the other options are wrong
- A. A takeout loan is a long-term mortgage that replaces a construction loan after a project is completed, not for the initial development phases.
- B. A bridge loan is a short-term loan used to 'bridge' the gap between two transactions, not for long-term development financing.
- D. A construction loan typically finances the building of a single property or a specific phase, not the entire land acquisition and multiple properties.
Blanket Mortgage
A single mortgage that covers multiple parcels of real estate, often used by developers to finance a subdivision.
- Covers several properties under one loan.
- Commonly used in real estate development.
- Includes a 'partial release clause' for selling individual lots.
Memory trick: A blanket covers many, just like this loan covers many lots.