How many draw inspections are allowed on an FHA 203k loan in Columbia?
Just kidding, this is good anywhere in the USA and it's colonies.
It is one thing having a guideline and quite another interpreting it. The HUD guideline actually says something like "...a typical project size is $25,000 in construction and no more than five draws would be allowed."
Many, including many at HUD now are interpreting that to mean "only five draws are allowed". This is absolutely bogus and not true. Bank of America came out with a rule that once you reach five and there is only one more, you can have six... woo hoo. They go further to say if you have more than six then you can only have five. Interesting. What they want us, as consultants, to do is call the fifth one a "final draw" which of course is not true, but to please them we need to do that, then all remaining money goes to the contingency where it is paid out as change orders, which causes you too loose all track of the actual remaining work... not to worry, we just have them fill out the regular draw forms for our records then do a change order to comply with BofA's in-house rule. By the way, talking to some of the old timers in the draw department if you have a large project and need more draws, just tell them, they will get it authorized. It seems they have a bunch of good people still that really understand the process and the fact that more than five draws are okay.
Well the virus of "no more than five draws" has spread to Prospect Mortgage. We have a $300,000 project going with them right now and they won't do more than five draws. The borrower and contractor want ten draws on their draw schedule. NOPE, five is all we'll do. After talking for a while they did agree to do five draws and a final draw, which now totals six draws. Hooray
and halelouya. They don't realize how hard it was to keep this loan with them. They almost lost an old customer. Yike's why draw a line in the sand over something so trivial? Who actually is going to argue with getting $300 or holding out to get $900 to cut a check for the ten checks they will have to cut? HOLY MOLEY
Wells Fargo on the other hand will allow you to put as many draw inspections as you want to put on a project... then only fund five of them... just kidding.
We have several projects going where the next draw inspection will be the ninth, tenth, eleventh or twelfth. More than five is okay if the project makes sense. It isn't about whether the contractor can carry the job, He shouldn't have to carry the job. If he carries the job how many can he carry at a time. You end up hurting the contractor's chances of growing his business by making him carry the project for more than he wants to allot for any one project.
Some might argue that the maximum time to complete a typical project is six months and you must have a draw each month that six would be a place to cut it off. The problem with that thinking is that they must have a draw each month but they can have a draw every two weeks if they are moving fast and getting things done. In any case, enjoy your next 203k project and if it is a large one, give it some thought that the contractor has to survive too and he may need more than five draws then choose your lender wisely.
What happens today and since the latest Handbook 4000.1 it states flatley there is only five draws allowed. Remember that the FHA is just an insurance company and it was explained to me that this was done on purposes to limit the number of draw inspections that could be built into the loan... NOT how many total draw inspections that might be needed or used on an individual project. They don't want more foreclosures just want to limit the number of draws they are willing to finance.
Why don't they just spell it out so we all know their intention? Who knows. All of us that are doing our 6, 7, 8th or more draws on one project appear to be okay provided they weren't financed in the loan.
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