Advance
Definition and meaning of Advance in real estate.
An advance is a portion of a loan or mortgage that a lender releases to a borrower, often before the final loan agreement is completed or during specific phases of a construction project. It can refer to either the act of distributing these funds or the money itself.
In more detail
In real estate financing, advances are common in construction loans where the lender releases funds in stages rather than in one lump sum. These stages, known as draws, occur as the builder completes specific parts of the project. The lender typically sends an inspector to verify the work before authorizing each advance.
This process protects the lender by ensuring the loan balance does not exceed the value of the physical property.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Commonly used in | Construction loans and lines of credit |
| Purpose | To fund specific project phases as work is completed |
| Lender requirement | Verification of completed work before release |
A homebuyer taking out a construction loan receives an advance from their bank after the builder completes the foundation of the new home.
Frequently asked questions
How does an advance differ from a traditional loan disbursement?
A traditional loan disburses funds all at once at closing, whereas an advance is a partial release of funds made over time as needed or as project milestones are met.
Does interest accrue on the full loan amount or just the advances?
Interest typically accrues only on the portion of the loan that has been advanced to the borrower, not on the undisbursed balance.
Related terms
Sources & references
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