Finance
In New Mexico, a 'standby commitment' in commercial real estate construction financing is used to:
AProvide a backup buyer for the property
BProvide a permanent loan commitment that replaces the construction loan upon project completion✓ Correct
CGuarantee contractor performance
DProvide insurance for construction delays
Explanation
A standby commitment is a promise by a lender to provide permanent (take-out) financing at completion of a construction project. Construction lenders require it as assurance that the short-term construction loan will be repaid.
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Key Terms to Know
Debt-to-Income Ratio (DTI)
A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
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