FHA 203k draw problems and solutions

I had a customer call yesterday with a nightmare scenario. She had successfully closed a renovation loan with her friend at ( we will call them mortgage company X to avoid colleague bashing). Her friend actually did a great job and closed her mortgage on time but the loan officer or her were not educated on how the drawl process works. This is where even the most experienced loan officers in the business can have major shortcomings on these loans if someone that is truly experienced they may unintentionally hinder your project. After closing she had no idea where her firends company had sold her mortgage or exactly how the contractor was to get paid. She didn’t ask about the draw process. The loan officer knew she would get her funds after closing but didn’t understand the whole process. Here are a couple of interview questions you should ask your loan officer before considering letting them help with your 203k loan. After I give you the questions, I will show you how Sarah could have avoided disaster. 1.How does the draw process work? 2.Who will service my loan once the loan is closed? 3.How fast are the funds available after closing? 4.Can I get money for my contractor for materials up front in the process? 5.How many of these transactions have you completed this year? Any loan officer should be able to descried exactly how the funds will come after closing. If they can't feel comfortable explaining it to you, then they may not fully understand the process. This is important to your contractors as they may or may not complete work on the timeline you expect unless they get their draws timely. One of the answers your loan officer should give you is who actually distributes the funds after closing. Do they have a number to reach these folks before closing? Few lenders have invested in their internal working to fund a service the loan through the drawl process. The bottom line to this is that if you don’t have a straight answer on who services the loan until the renovations are complete you may not be able to get a hld of or even know where your loan have been sold to if you have a loan that has brokered your transaction through a different bank. They may not even know when their draw department will get back to you or your contractor with your funds until the right department obtains your file and loan transfer if it isn’t serviced with the same institution that closes your loan. Most Institutions that do service their own drawl can get the funds to your contractor in about 1-2 weeks after closing. Sarah’s debacle is not unique. Unfortunately, it happens frequently that a month or MONTHS after closing the Loan package from closing still hasn’t been received to start the initial draw to start construction. (Google this on the web to see several other instances of this) Imagine owning a new home a not being able to move into for a “few months” after closing. Because I am a consumer advocate I will have to throw out one qualifier and suggestion of how to combat this. 1.Any lending institution reserves the right to see your loan at any time … this just happens more frequently with smaller institutions that don’t have liquidity requirements to service the loan through drawls. 2.FHA 203k offers a payment abatement (see: blog on Payment abatement on 203k)for up to 6 months while the home is inhabitable Do your Due …