You’ve secured a loan for your Fix and Flip project, selected a contractor, and are ready to start taking a hammer to the splintering side paneling of your future flip: now what? When your fix and flip loan is ready to be funded, the amount of the construction budget will be deducted from the funds disbursed to you at closing. For example, if your total loan amount is $200,000 and the construction budget is $75,000, only $125,000 will be disbursed at closing, with the balance held for future construction draws. During underwriting, you or your contractor will be required to submit a scope of work for your fix and flip project that includes the cost of each task to be performed, grouped into draw requests.
Once work specified in a draw request is completed, you may submit a Draw Request form.
On this form, you will identify each item of completed work for which you’re requesting payment. Your lender will then schedule an on-site inspection of your property to confirm the accuracy of the draw request and validate that the amount of work completed matches the requested draw.
If the inspector notes any issues with the draw request, such as work not fully completed or work not completed in a satisfactory manner, the amount of the draw request will be reduced to match the amount of work actually completed. In such event, the uncompleted work may be included in a future draw request upon completion.
Most loans are structured with two to four draw requests, though some more complex projects may have as many as six (which is generally the maximum). Your loan fees at closing will be based on the number of anticipated draw requests and, if you exceed this amount, a fee will be charged for each additional draw.
If there are no issues, most draws can be paid within three to five business days. As the property owner, cost increases are solely your responsibility. If specific items end up costing more, you are responsible for any difference between the actual and budgeted costs.
Additionally, at each draw request, we will validate that the remaining, un-disbursed construction budget is sufficient to complete the project in accordance with the original scope of work. If the remaining budget is deemed to be insufficient due to cost overruns or other reasons, you may be required to pay a portion of the construction costs in order to bring the project back into balance with the construction loan.
If rehab or construction funds are still available after the project has been fully completed, we will disburse those funds to you, provided that the loan is not in default.
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