This section is from the book "Practical Real Estate Methods For Broker, Operator & Owner", by Thirty Experts. Also available from Amazon: Practical Real Estate Methods for Broker, Operator, Owner.
G. Richard Davis
A general definition of a building loan might be that it is a loan secured by bond and mortgage on a piece of vacant property, for the purpose of giving to the owner of that property the necessary financial accommodation to assist him in the erection of a building upon his land.
The broker, builder and building loan investor, all of whom deal in building loans, have continued occasion to estimate how large a building loan may be obtained, or should be made, on certain projected building operations.
The lender and broker must also understand how to safeguard their interests, when and in what sums to advance money, etc.
In estimating the amount of building loan to be made, consider (1) the dimensions of the land; (2) the area or the percentage of the lot that the building itself will cover; (3) the height and general character of the building - that is, whether it is fireproof or non-fireproof, and the purpose to which it is to be put; (4) examination of the plans and specifications; (5) whether the building, if properly planned, is of a character suitable to the neighborhood in which it is to be erected; (6) the financial responsibility of the builder and his general standing as a mechanic and constructor of well-built buildings; and last and most important, the value of the land and the cost of the contemplated improvement. All these points enter into the question of whether a building loan should be made and how much should be loaned.