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Construction Terms for Residential Construction

Know Construction Terms for Residential Construction

Residential Construction Terms

Building Codes

Regulate the design, construction, and materials used to meet standardized guidelines for building safety.

Building Permits

Provide official permission to build from the local municipality


Anyone who contracts with a property owner to improve real property. Loan funds are usually disbursed to the contractor for work performed. It is the contractor’s obligation to pay the sub contractors hired to perform work on the job.

Certificate of Completion:

Final approval by the local building department that the house has been completed in accordance with building rules and regulations.

Contractors Affidavit:

With each draw request the contractor/builder will provide the lender with an affidavit indicating that all subcontractors associated with that particular draw have been paid.

Construction Fund:

The amount of money that the mortgage lender holds for financing the construction of the house. The amount of the construction fund must be enough to cover the “hard costs” of construction.

Construction Terms for Residential Construction
Construction Terms for Construction

Construction Liens:

Liens on real property that are filed by a party furnishing labor, materials, or services for the construction of an improvement, and who are not paid after performing such a service.

Construction Loan Agreement:

The agreement between the builder or contractor and the lender regarding how the construction loan will be handled. It is designed to protects the rights of you, the borrower and the lender. The builder/contractor is required to sign the agreement along with the borrower.

Cost Breakdown:

An itemization of the cost of all components of the house. Usually these numbers are based on bids or estimates from the subcontractors. For example: Plumbing, roof trusses, painting etc. Lenders use the cost breakdown to determine the funds needed in the construction fund.

Disbursement at Closing:

The amount of funds disbursed from a construction loan at closing. Typically a lender will disburse 10% of the construction costs to the Builder/Contractor at closing to pay for site work and permits. Closing costs may be paid from the loan fund. The remaining monies from the loan will be placed in the construction fund.


The method by which the construction fund is disbursed. Typically there are five six draws and a final inspection. Draws are disbursed based on the percent of work completed. When the percent-completed method the draw schedule allows a certain percentage of the construction loan fund to paid for actual work completed. Draw Schedule.

Draw Proceed Checks:

Checks are typically made payable to the Builder/Contractor. The last draw check is typically made payable to both the borrower and the Builder/Contractor. This allows the owner to assure that all work has been completed before the final payment to the Builder/Contractor.

Draw schedule:

Details exactly how the construction loan will be disbursed. see draw.

Drywall Material

The product used to complete the inside walls of a house.

Environmental Engineer:

Consultant on environmental impact issues, including water supply engineering, air pollution control, and waste water treatment .

Final Affidavit:

The builder/contractor’s affirmation that all bills associated with the construction of the house have been paid.

Final Title Update:

The title company does a title search to assure that there are no outstanding liens on the house.


Building the skeleton of the house by erecting the walls, floors, ceiling, and roof structure. Framing usually refers to the wood structure involved in construction, such as interior and exterior walls.

General Contractor

Supervises the building process by managing the construction eff o rt performed by the various contractors.

Hard costs:

The funds associated with the construction costs of materials and labor needed to complete the house. It does not include the overhead, profit and sales costs associated with the house.


When the builder/contractor completes a certain amount of the work on the construction project, a construction inspection is requested. The lender will send an inspector to verify that the work has been completed, usually by the next day after the request was received. The inspector will verify the work completed and notify the lender’s Construction Loan Department. If the work has been completed in accordance with the Draw Schedule a disbursement will be made from the construction loan fund.


An obligation to pay a sum of money that is attached to fee simple title.

Modular Home

A factory-assembled residence built in units or sections, transported to a permanent site and erected on a foundation. Excludes mobile homes.


An individual or entity that holds a legal interest in real property. For lender purposes it is the owner who is the borrower for the construction loan and is obligated to repay the loan.


The architect’s drawings that will be used by the appraiser to estimate the cost of building the house. Plans are certified to the owner and the builder.

Release of Liens:

A release form signed by the person or entity that placed a lien on a real property. A release of lien form is used when an obligation to pay money is satisfied.

Rollover of the Mortgage Construction Loan to a Permanent Loan:

Upon issuance of the Certificate of Occupancy and completion of the term of the construction loan, the loan will become a permanent loan. The rollover will provide for final payment of the construction loan interest and establish a payment letter for the amount and first payment date of the permanent loan.

Roughed In

Installing wiring, plumbing, and heating vents before the walls are covered.

Soil Test

A test boring of the soil from where the house will sit to ensure that it can handle the load of the structure.


A detailed list materials and fixtures that will be used in the house. This tells you the quality of the materials to be used and also helps the appraiser estimate the cost the cost to build.

Structural Engineer

Develops structurally sound solutions that fit with an architect’s design and ensure that structures can withstand stresses from earthquakes, wind, ice, and snow.

Sub Contractors:

Anyone who enters into a contract with a contractor to perform part of the contract between the contractor and the owner. Sub contractors are the most likely not to get paid and therefore the most likely to file a claim of liens.


The measurement and description of land by a registered surveyor