In real estate, a holdback refers to a portion of money that is not paid out until certain specified events or conditions have been met. These events could include the completion of a floor loan, the fulfillment of a loan commitment, or retainage on a construction contract.
A loan commitment is an agreement by a financial institution to lend a specified amount of money on established terms in the future. This commitment outlines the conditions under which the loan will be provided and ensures the borrower of available funds when needed.
A locked-in interest rate is a rate promised by a lender at the time of loan application. The promise is a legal commitment of the lender, though there may be qualifications or contingencies that allow the lender to charge a higher rate. On home loans, the lock-in is customarily provided for 1% of the amount borrowed, though often it is free of charge. However, many prospective lenders find ways to renege on commitments when interest rates rise.
Mortgage out refers to obtaining financing in excess of the cost to construct a project. It's a process used by developers to secure a permanent loan commitment based on a high percentage of the completed project's value. Due to stricter underwriting criteria, opportunities to mortgage out have become nearly nonexistent.
A standby fee is a sum required by a lender to provide a standby commitment within a certain period. This fee is forfeited by the borrower if the loan is not closed within the specified timeframe.
