Draw Process
Here's how it works. |
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You and your builder draft a draw schedule.
Prior to your loan's closing, you'll work with your builder to draft
a draw schedule. Generally, funds are disbursed on a percentage-completed
basis according to your agreement with your builder.
One of our loan professionals can advise you and provide the
appropriate paperwork. We can also tell you about standard
practices and typical expectations.
We've designed our loans to provide extra flexibility,
so you have more choices. You can pre-assign payments by
specific dates. Or you can be more flexible and make
payments contingent on the progress of the work.
Funds can be wired or mailed directly to your builder's account.
Agreeing to a system of disbursement approvals is a central
part of the draw process. Make sure you're comfortable.
Talk with your builder about what to expect.
We can also provide an initial disbursement before
construction even begins. It's a smart way to cover
start-up costs like architectural and engineering fees,
as well as permits and other soft expenditures.
With most Custom Construction financing, the foundation
must be poured before any funds are released. But we can
deliver your first draw as soon as your loan closes, provided
it is used to cover soft costs as indicated above.
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Your loan closes. Construction begins.
From the beginning, you can count on working with a senior loan
disbursement administrator, a specialist responsible for tracking
the details of your financing and the progress of your construction.
During the construction phase, your loan payments begin.
To help you meet any financial challenges, you can make
interest-only payments while your house is being built.
We'll calculate the interest based on the total amount disbursed,
so your payments will increase only as more of your loan is disbursed.
If you choose our interest reserve program, you have the option of
making no out-of-pocket payments during construction until the
interest reserve is exhausted. With the interest reserve program,
the interest will be financed and thus included in your total loan amount.
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You manage draws as work progresses.
Your builder will request payments by submitting a Draw Request and Disbursement
Authorization Form. Whether you've agreed to an established payment schedule
or you're using a more flexible process, a draw request is required.
Each request must be signed by the appropriate parties and faxed to us.
Additionally, a lien waiver from your builder is required. Your senior
loan disbursement administrator will oversee each request and payment.
Once we receive a draw request, we'll order an inspection of progress.
For the first draw after the foundation is completed, a foundation
endorsement is also required from your title company.
In those rare cases in which you would like a deposit to be paid for
custom materials, please also include the supplier's invoice.
If your builder is the sole signatory, we will wire funds free of
charge to you or your builder's account once the results of each
inspection are reviewed. On the day of each disbursement,
an updated Draw Request and Disbursement Authorization Form showing
the remaining available funds will be mailed to you and faxed to
your builder, unless otherwise requested. Typically, the process
is completed in three to five business days.
How much cash do I you need?
Maybe not as much as you think. Most construction lenders advise
having a sizable cash flow available. With our fully financed
reserve funds, you don't need to have a lot of cash on hand to
keep your project on track. Because a generous percentage is set
aside for emergencies, and the reserve is fully financed, the
unforeseen expenses won't drain your immediate resources.
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In the event of unexpected expenses, tap into reserve funds.
Unforeseen expenses are common in home construction.
Contingency reserve funds can keep your project moving forward
covering unexpected expenses and cost overruns. Although it is
typical for a len4er to require cash reserves for these purposes,
we can finance those funds for you.
The amount of contingently reserve funds is usually equal to five
to ten percent of estimated hard costs, which include labor and
the building materials associated with the project, such as lumber,
cabinets, flooring, etc.
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Construction is completed. A final draw is requested.
To secure the final payment and close your construction loan,
several documents are required.
You will need to provide the following:
- Borrower letter of satisfactory completion stating that construction
is completed to your satisfaction and request in that all remaining funds be released
- Copy of permanent homeowners policy showing correct mortgage close
- Draw request with the amount to be released for the final draw
- Payment authorization (if you are requesting that your mortgage payment
be automatically taken from your bank account)
The builder will need to provide the following:
- Contractor affidavit stating that construction is complete and that
all material, labor and subcontractors have been paid in full
- Final lien waiver and release
- Copy of the notice of completion (if required by your state or municipality)
The lender will be responsible for ordering:
- Final Title update and Alta rewrite
- Final 442 Appraiser's Inspection to re-inspect the property to
confirm the completion of construction in accordance with what
was approved. Please note that if the builder has already
provided you with the keys to the residence, the appraiser
will be contacting you for access to your new home.
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Your loan automatically rolls over.
The transition from construction to permanent financing is seamless.
No separate approval process is required, so no extra fees are incurred.
After the final draw is released, your loan - based on the total
funds actually disbursed, including any reserve funds - will roll
over to its permanent phase. We will send you a letter advising you
of your principal balance and your new payment. An automatic payment
service can be arranged to make your monthly payments even more convenient.
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