What is the maximum number of draws on a 203k project?

By
Home Inspector with 203kOnLine.com, covering the USA S0289

What is the maximum number of draws on a 203k project?

I have had a major lender turn down a loan when our contractor requested 10 draws @$30,000 for a $300,000 construction amount.

I set in on a Denver HOC web-cast as I thought we would get some new input or incite. Sadly they were merely reading from the 1994 manual, and mis-reading this portion as so many do. 

4240.4 Rev-2 states "Intermediate draws (four maximum) [and one final draw] are inspected by the HUD assigned fee (or DE staff, where applicable) inspector (see paragraph 4-9)."

It goes on to state "If the cost of rehabilitation exceeds $10,000, then additional draw inspections are authorized provided the lender and borrower agree in writing, and the number of draw inspections are shown on Form HUD 92700, 203(k) Maximum Mortgage worksheet."

That is pretty clear to me that more than 5 draws are allowed as long as everyone agrees.

The new guideline that came out 14 SEP 2015 actually states there are no more than 5 draws because they had someone unfamiliar with the program rewriting the program while being coached by someone not fully familiar with the process.

The "new guideline" has a list of the ML and handbooks that are being replaced and low and behold this 4240.4 isn't one of them, leaving it fully in force.

Posted by

Mike Young, 203k Team Leader    Mike ready for your 203k order

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Comments (3)

Jeff Jensen
The Federal Savings Bank/Lending in 50 states - Greenwich, CT

Some of those regulations can be difficult to interpret.  Bureaucracy!!

Feb 19, 2015 07:32 AM
Tom Arstingstall, General Contractor, Dry Rot, Water Damage Sacramento, El Dorado County - (916) 765-5366
Dry Rot and Water Damage www.tromlerconstruction.com Mobile - 916-765-5366 - Placerville, CA
General Contractor, Dry Rot and Water Damage

Thanks for the clarification Mike, you are the expert here! Keep it up.

Feb 19, 2015 02:14 PM
Mike Young
203kOnLine.com, covering the USA - Las Vegas, NV
FHA 203k Consultant 916-758-1809

Thanks for stopping by guys. This has been a bone of contention for me for many years. I know the guideline in this regard and when I sit in on HUD produced webinars, they always insist on reading ONLY the last half of the sentence that implies only five draws are allowed. It just isn't so. Then you have some lenders that interpret it their way... and say we'll do only 6 max. You have to laugh, if you are hanging your hat on five then why allow six. The reality is many required more than eight and some over ten.

Feb 24, 2015 12:19 AM