What is a builder line of credit?

How a builder line works.

A single-house construction loan funds one budget from the first draw to the last. A builder line funds a moving set of houses: some presold to a buyer, some spec homes started before anyone signed, a model or two, sometimes finished lots. As houses sell and close, the builder repays them and the line can fund new starts.

The OCC's Comptroller's Handbook describes the borrowing base behind most of these lines. It is a revolving credit agreement that sets the most the bank will lend as a function of each piece of collateral's type, value, eligibility and advance rate, under a separate overall commitment ceiling. Advance rates are higher for collateral with less risk, so a developed lot usually earns a lower rate than a completed home. Eligibility rules commonly limit the number of speculative units and how long a completed unsold home or finished lot may stay in the base.

What the lender watches.

The FDIC's examination manual says a limit on the number of unsold units financed at one time is typically written into the loan agreement, so the builder is not overextended. The OCC adds that availability is usually set by a borrower-prepared borrowing base certificate, often monthly, and recommends periodic on-site verification and a reconciliation with the borrower's financial statements.

Why it matters for lenders.

A line can look healthy in total while one house has stopped moving. Each house is its own collateral, so an inspection history by address, stage and date is what lets a lender check a borrowing base certificate against the ground. The FDIC's construction and land development procedures also look for inspections before draw requests and on an irregular schedule. For the policy side, see spec home construction loan inspections.

How RAZE handles it.

In RAZE each house is its own project with its own address, and the lender orders and tracks every inspection across the builder's line from the Ordering Engine, with its own required questions and photos on each order. Photos carry GPS coordinates and date and time stamps and link to the draw sheet line items they support. Through RAZE it is a flat $125 per single-family inspection when RAZE sends the inspector, or $25 per request with your own inspector, per the RAZE Rate Card. RAZE documents each house; the borrowing base, the spec limits and every advance stay with the lender.