Construction draws on hml

[Kristi Wolfe]

I'm a newbie, and trying to make sure I know every penny of the costs associated with my future BRRRR. My lender just told me that construction draws cost $200, and require an inspection- SOP, it seems, but he said I can draw as often as I like. So- what if I just pull it all out right away to minimize paying the fees? I'm sure there's a drawback to that- but what?

[Coral Hernandez]

@Kristi Wolfe

Hey just to follow up. If your agent or broker is not explaining everything in detail, I would work with someone else.

Hey so, on avg. the Construction draws are $200-$250. The Construction Rehab Budget and Appraisal are based off of the Scope of Work you provided. When it comes to obtaining the Draw it goes based off of the SOW(scope of Work) and what was completed. So, if it says, Kitchen $7,000, once you complete that, they will send inspector out and check if the Kitchen was done and how much of it, and they will issue Funds based off that report. The reason you cant just request a draw for the whole amount is, the entire SOW would have needed to be completed to do so. To that point, you are required to have some Cash upfront to start the Rehab, until you complete a portion and get reimbursed. So its important to have the figured in with the Holding Cost.

To follow up on that, is the process in which you are reimbursed through the Draw system. It's important to notify your HML a 2-5 days before the work is completed. This will allow 2-3 days for the Inspection to be ordered and the Inspector to go out to the property and ensure the work was actually completed before issuing funds. Once they report that information back to the HML, it takes another 2-3 days for the Wire to hit your account, a lot of lenders won't properly explain that and then the project is delayed because your GC is waiting to get paid.

     Another super important fact is Contractor License. A lot of times rehab work isn't completed by a Licensed General Contractor, which in most cases is just fine. But... Some lenders require the work to be done by a Licensed GC but don't tell you to after the fact. So, you'll complete the work , order inspection, and then you find out you are not getting any draw because the work wasn't completed by the Licensed GC. 

These are just some of the things you must be aware and a lot more that is never explained. There is a couple different moving parts when it comes to these Loans. Its super important you work with someone that is Upfront and has the required experience / knowledge to inform you of these things. And if you don't know what to ask, sometimes the person you are working with might not realize what your education level is, with regards to HML's.

I hope this help. If you have further questions, Let's Connect!