Once you’ve closed your fix and flip or new construction loan, the next exciting step is to start construction! As you complete work on your project, you’ll want to draw funds from your loan to pay for the work that you’ve done. To do this, you’ll submit a Draw Request to your lender.
Draw Schedule and Construction Budget
Prior to closing your loan, you or your contractor will provide your lender with an itemized schedule of work to be completed, along with the associated costs. This will be organized on a form called a Draw Schedule that will become the basis for submitting your future draw requests.
Most loans will permit you to take between three and six draw requests, though loans for more complex projects may allow more. If you anticipate needing to more take more draws, your lender may permit that, but with more fees charged (to offset the lender’s higher administrative costs).
- You can only request draws for completed work. Most lenders will not reimburse you for materials purchases, contractor deposits, or similar items. Even if you’ve purchased and paid for those kitchen cabinets, don’t expect your draw request to be approved if they’re sitting on the floor – they must be fully installed.
- You must submit your draw requests in accordance with your originally approved budget. Even if your costs go up, your lender will issue draws from your original Draw Schedule, though your lender may allow some flexibility to re-allocate your budget between items – if you can show savings in other areas. If you change your plan significantly, though (such as changing room counts or other significant alterations to your plan), don’t expect your lender to blindly approve your request. Significant changes to your construction budget can only be made with your lender’s approval and may require your loan to be re-underwritten.
After receiving your Draw Request, your lender will schedule an inspection of your property. The purpose of this inspection is to obtain photos showing that the work you’ve listed on your Draw Request has actually been completed. This inspection will usually occur within two or three days of your Draw Request submission.
After receiving the inspection photos, your lender will determine the amount of work complete and issue your draw. If items you’ve requested are not complete, the amount paid to you will be reduced to match the amount of completed work. In such event, you can re-submit those items on a future Draw Request once they’re complete.
How Long Does the Process Take?
If there are no issues, most draws can be paid within three to five business days. You can help speed up this process by accurately completing your Draw Request and making sure that it matches to your original Draw Schedule and budget. This will make your lender’s job easier, meaning you can get your money more quickly.