Understanding the First Draw Inspection in Your FHA 203k Project
The first draw inspection is a crucial step in your FHA 203k renovation journey. It impacts both you, the homeowner, and your contractor. Let's break down what you need to know:
The Importance of Upfront Planning:
For contractors, the standard 203k program requires them to use their own funds initially. This "skin in the game" ensures they're committed. However, a well-planned project minimizes this burden.
Understanding Soft Costs:
Permits and architectural fees are "soft costs" that do not require a draw inspection. The lender holds these funds separately and releases them upon receiving receipts, permits, plans, or reports. Once the contractor pulls the permits, this money can be reimbursed without using one of your draw inspections
The First Draw Timing:
The first draw is typically smaller than future ones. New contractors might underestimate the initial wait. It takes about a week after closing for the lender to assign your project manager, so hold off on requesting a draw too soon.
Setting Realistic Expectations:
Don't expect immediate construction after closing. The contractor needs time to schedule their crew and order materials. This period involves planning, not idleness. The contractor has up to 30 days to get their first draw inspection.
The First Draw Inspection:
This inspection focuses on completed work. It includes items like septic or well work (depending on your project) and anything else finished or partially completed at the time. If this project is a $100,000 project, the contractor should plan on splitting the five draw inspections into equal parts so the first draw should be about $20,000. Quite often it is $3-5,000 as the contractor wants to "test the system". It could be very disappointing if they request a draw inspection before the money has been transferred to the draw department. When this happens, it may take two weeks to get that first draw money, but had they waited a few weeks, it might only take 2-3 days to get that money.
Payment for Completed Work:
The contractor receives payment only for verified completed work. Don't request payment for unfinished tasks. You wouldn't believe how many times we hear, "but it will be done in about an hour." In any case, if it isn't done when we make our inspection, it doesn't get paid.
Subsequent Draw Inspections:
As the project progresses, the process repeats with inspections and payments for completed work.
Communication is Key:
Open communication between you and your contractor is essential. Discussing a project plan after closing helps avoid surprises and streamlines the process for everyone.
Additional Tips:
- Consider a meeting with your contractor before closing to discuss project logistics and crew scheduling.
- Be patient during the initial setup phase. The contractor is laying the groundwork for a successful renovation.
By understanding these aspects, you can ensure a smooth first draw inspection and a stress-free FHA 203k renovation experience.
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