In a construction loan, what does a take-out commitment require?

• A. A line of credit for the construction phase
• B. A private mortgage on the land
• C. A permanent lender who will provide financing upon completion
• D. The insurance company funds the project

Answer: (C)

A take-out commitment is the promise by a permanent lender to provide long-term financing to pay off the construction loan once the project is completed and meets the lender’s conditions (such as appraisal, stabilization, and occupancy). This arrangement lets the construction lender know there will be funds available to repay the short-term construction loan when the project finishes, reducing their risk and enabling them to fund the construction phase with confidence.

It’s not a line of credit used during construction, which is the purpose of the construction loan itself. It’s not simply a private mortgage on the land, which would be private financing rather than a future, formalized permanent loan. And it isn’t funds from an insurance company; the take-out specifically refers to a permanent lender agreeing to finance the project upon completion.