13.14.3 Interest Accrued

• A. Interest is allowable in the amount accrued on the first mortgage between initial endorsement (start of construction for insurance upon completion projects) and the cut-off date defined in Section 13.6.

1. Recognize interest costs associated with an approved early start, provided:

   • The Borrower entered into an agreement with the contractor which:

• 1. Was approved by the Regional Center Director.
• 2. Agrees to reimburse the contractor for interest on money borrowed for construction prior to initial endorsement.

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Chapter 13 Cost Certification 13.14 Review of Borrower’s Cost Certification

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• 3. States that reimbursement will be made only to the extent the Borrower has funds available in the amount estimated for interest during construction.

• The certified amount, when added to the interest cost incurred directly by the Borrower, does not exceed the total amount of interest estimated in Section G of form HUD-92264.

• Form HUD-92415, Request for Permission to Commence Construction Prior to Initial Endorsement for Mortgage Insurance, was executed and approved.

• Interest costs reflect the contractor’s actual cost of money borrowed to cover the cost of construction between the early start date and the initial endorsement, as adjusted by Section 13.14.5. below.

The rate of interest does not exceed the rate established for the insured loan.

2. The interest rate paid on the construction loan cannot exceed:

   • For insurance of advances: the rate stated in the Firm Commitment.

   • For insurance upon completion: the rate acknowledged by the Regional Center Director before issuing the Firm Commitment.

3. Deduct accrued interest forgiven by the Lender or otherwise not paid in cash.

4. Treat Lender/Bond Underwriter’s refund of any portion of the construction loan interest to the Borrower or Sponsor as a direct mortgage reduction to the original mortgage amount on form HUD92580.

5. If the construction interest rate changes before initial endorsement and it was not feasible to reprocess the project, or if tax exempt bonds were sold to finance the construction loan and the true interest rate was not known until cost certification:

   • Interest savings may be created from the difference between the processed interest rate and the actual final interest rate.

   • Treat these savings as a direct mortgage reduction if the following condition was included in the Firm Commitment:

• 1. “Any interest savings resulting purely from a differential between the HUD processed interest rate and the actual construction interest rate may not be construed as excess funds that may be used to offset costs in other categories at the time of cost certification. Any such saving must be applied as a mortgage reduction.”

6. Neither the interest on subordinated liens nor other obligations of the Borrower are allowed as certifiable costs.