Once the project is funded and the work begins we have a process called the "Draw Process". Since the Full 203k loan program is a "reimbursement" program for the contractor, the contractors must get some work done with his own funds and wherewithal in order to get "reimbursed" from the loan.
The loan closes, the contractor should be notified ASAP. There are many borrowers who might be disappointed unless properly schooled ahead of time but the contractor doesn't have to start on the job the next day. Sorry, that isn't a "must". What is more likely to happen will be that the contractor will assess their work load and, as an example, they might see that in a week or so they have a job winding down.
They are allowed to coordinate a smooth transition to this project. That doesn't mean they are working on your project. There is a bit of materials gathering that will happen in that week or so, lining out the project so they don't have drywall mud being placed the same day the exterior siding is being nailed up and so forth. If you have all the trades trying to work at the same time you can have a bit of chaos.
What the contractor must do to stay in compliance with the loan program is that they must have their first draw within 30 days of the COE. That means typically that they will actually start on the project about two weeks into the project so in another two weeks they will have enough completed that they can get some cash flowing to that project.
Each line item has their profit built into it so they will see some of their profit and overhead with each draw. The lender will always hold back 10% of each draw until after the final inspection and submission of the paperwork.
How fast will the contractor get that first check or draw payment? That is a big question with multiple answers. Typically it is common knowledge that Wells Fargo pays the fastest but lately they have been slowing down and while a few months ago I could say 3-day payout was typical, right now they have slid back to 5-7 days. Bank of America if they make the loan themselves is typically 7 working days, Prospect Mortgage is about 5 days right now. Bank of America draw center for a correspondent lender or a lender who closes the loan with thier own money then sells that note to Bank of America has another issue. The first draw will not happen within the first 30 days because they underwrite it all over again to see that it meets their guideline. What does this mean to the contractor and getting paid, nothing if you pay attention to the info above. Wait for two weeks before starting the project so your first draw is on the 30th day after close and you will likely get your check in 7 days or so.
This is always changing we saw it back up to 6 weeks for everyone a few years ago but it was due to several circumstances all happening at one time that put the industry in a bind. That, thank goodness, is behind us and all of the lenders I've mentioned above now do a decent job of getting the money out there to the borrower and contractor pretty fast. If you expect 7 days you will likely be happy more often.
The check will typically be made out to the borrower and contractor and mailed to the subject property. The borrower is to sign the back and hand it to the contractor. I had to laugh back in the 90's, the 1990's of course, when on the 4th draw the contractor asked me "when will I get the check for the first draw". I looked at the borrower and asked, "are you holding his checks?" and he answered "just three of them, I didn't know what to do with them". Right, I then asked him to hand them to the contractor. Remember though we may do lots of these the people we are working with are likely doing their first one so you need to handle them with care.
In any case the work is always completed after the close of escrow and after the agents have been paid. We, on the other hand stay with your client until the project is complete.
We'll talk again soon, M