Sunday, October 20, 2013

What is the Maximum Number of Draws You Can Get on an FHA 203k loan?

That depends on who you ask... shouldn't be that way but it is. It should be per the HUD guideline but most lenders dont' know how to read the guideline except the portions or parts that they want to enforce. Now even HUD representatives have succumbed to the popular myth there are to be only five... read on

1) They all quote the guideline as "no more than 5 draws will be allowed". If they read the entire paragraph is says "on a project size of $10,000" just before it limits them to five.

The guideline actually suggests 4 draws and a final for smaller projects

The fact is that they will be whatever they are.

There are people at Wells Fargo that know we can't do a $500,000 project with five draws in most cases. If you make the request you can enter eight or ten right up front and include them in the loan amount.

Prospect Mortgage says they will go 6 if the 6th is the final but threw out a $300,000 project when the contractor asked for ten draws which was a reasonable request. They also told the client that they need to find a contractor that is more suitable for this size project.

The system is set up for a 1.5% "supplemental origination fee" which is intended to cover the draws and other related expenses on larger projects. In the case of a $300,000 project Prospect would have been provided $4,500 to set up the account and make those payments and would rather loose the loan, and did btw. 6 draws means $750 per draw check, versus 10 draws which would have only been $450 per check. Considering most accountants indicate it costs about $25 to actually run that check... you decide. But if you are going to require more than 6 draws take your loan elsewhere is pretty much the message they sent load and clear.

Bank of America on the other hand also does six if number six is the last one. This really gets good. If you have a $500,000 construction cost on a project and ask for 10 draws you will not get them here either. In fact if it takes six they will do them in six draws like Prospect Mortgage provided the sixth one is the final. However if it looks like there will be seven draws they will cut it off at five... they want all the money then moved to the contingency and it becomes a bit if a test to draw the rest of the money without the benefit of a draw request. They want everything listed on a change order and drawn as change orders from here out. What a nightmare. It reduces the accountability so to maintain that accountability we actually continue using the draw froms and then move the info to the change order form.

To learn more about the FHA 203k loan program go to www.203kOnLine.com. To contact us for a consultation please go to www.my203kconsultant.com and "order a consultation".