FHA 203K | HomePath Renovation | HomeStyle Renovation Loans – The Draw Process
I have closed hundreds of RENOVATION LOANS that all have one thing in common, both the contractor and the borrower want to know how the DRAWS are disbursed. Of course they do, this is critical information. HOW you get paid & WHEN you get paid are two MAJOR planning pieces of the renovation loan process.
Some lenders manage the draw process well and some lenders are terrible at managing the draw process (cough, BofA, cough). Sorry, had to clear my throat, but I digress.
The clarity of the draw process is not just lender specific though, it will also vary based on the TYPE of renovation loan you choose (FHA 203K, HomePath Renovation or HomeStyle Renovation).
I’d trust you ask your lender these questions, but, quite frankly, by the sheer volume of calls I get on this question it is clear the majority of them have no clue. Thankfully, I am here to help…
Consultant (Standard) FHA 203K Draw Process
Let’s start with my favorite of the renovation loans, the CONSULTANT / STANDARD FHA 203K loan. I like this loan the best because it’s easy to qualify for, it’s versatile on scope of repair and has flexibility with the draw process (if done correctly).
Basically, the HUD Consultant and the General Contractor can put their heads together and determine what’s best all parties. Whether it be two draws or the maximum of five, a simple discussion between the Consultant and the Contractor can hash it out.
Typically, funds are not disbursed upfront and each draw must be signed off on by the Contractor, the HUD Consultant AND the Homeowner. Wow, COOPERATION and AGREEMENT amongst ALL parties that everyone is happy with the work in order to GET FUNDS!
You’d be surprised how much smoother a renovation flows when everybody is on the same page. Scroll back with me a few sentences,”typically, funds are not disbursed upfront” is a true and accurate statement in most cases.
However, some jobs are material heavy and require deposits to get going (cabinets for example). In those cases we got you covered! An upfront draw can be requested and will typically be approved to get you started.
HomePath Renovation AND Streamline FHA 203K Draw Process
Simple and straightforward, the FHA 203K and the HomePath Renovation loans disburse funds in the same way. Depending on the lender, you’ll get 35%-50% of the funds within 5-7 business days after you close and the rest of the funds when the work is completed, inspected and the final title update is run.
We inspect to make sure the work has been done as specified and we run a title update to make sure ll the contractors have been paid and no one has placed any liens on the property. The checks are generally cut as two party checks made out to you and your contractor.
Fannie Mae HomeStyle Draw Process
The process for a Homestyle Renovation loan is very similar to that of the Full 203K with a few notable exceptions.
First, many lenders replace the HUD Consultant with another 3rd party like Granite Loan Management or Trinity Inspections, and second the Homestyle is usually capped at 4 draws instead of 5. That’s it, with the exception of those two items it pretty much mimics the Consultant / Standard 203K draw process
All in all, as long as you aren’t working with a couple of the BIG banks, you shouldn’t expect or experience a lot of pain from the RENOVATION LOAN DRAW PROCESS. It’s a pretty straightforward process and as long as your contractor is doing quality work and not deviating from the scope submitted to underwriting you should be go to go.
One last tip, if you need a permit for the work being done then GET THE PERMIT!!
Still have questions about the process? You should! I still haven’t described how you can use the CONTINGENCYÂ RESERVE, or what to do when you need a CHANGE ORDER on the scope of work, or what happens if your CONTRACTOR SUCKS, or what happens when…..you get the picture.
Pick up the phone and call me or click the little form HERE and message me. We are here to HELP!
More From 203K Mortgage Loans
- FHA 203K Loans – The Process
- HomePath Renovation Mortgage
- How to Write a FHA 203K Purchase Offer | 203K Loans | HomePath Renovation Mortgages – Georgia, Florida, Alabama, SC
203K Mortgage Loans Recommends
- FHA 203k Streamline: How Do Payments Work? (Arizona Mortgage Team)
- FHA 203k Streamline: Contractor Requirements (Arizona Mortgage Team)
If you enjoyed this article, please consider sharing it!
Connect!
