Understanding the Fund Control and Draw Process for Construction Loans

Fund Control and Draw Process for Construction Loans:


When planning a construction project, understanding how construction loans work is crucial. Builder Loans offers construction loans tailored to your specific needs, including owner builder projects. In this article, we’ll explain the fund control and draw process for construction loans, and how it can help ensure your project’s success.


Upfront Draws and Reimbursements


Construction loans are unique in that they provide funds in stages or draws, based on the progress of your project. This ensures that you have the necessary funds when needed while protecting the lender’s investment. Here are some essential facts about the draw process for Builder Loans’ construction loans:

* Upfront draw of 10% (up to $150,000) for permits, plans, and designs: This draw is intended to cover costs related to consulting, legal, development, and other fees. Having access to these funds early in the process ensures that you can begin your project with confidence.
* Reimbursement for all prepaid items spent on the project: Once your project is underway, you may have already paid for certain expenses out of pocket. Builder Loans will reimburse you for these prepaid items, helping you manage your cash flow during the construction process.
* 50% upfront draws on preorder items: This includes cabinets, windows, appliances, and prefabricated materials. Having funds available early for these essential items helps you plan and schedule your project more efficiently.


Electronic Draw Requests and Inspections


Once a portion of the work has been completed, you’ll request a draw electronically. This process triggers an inspection to verify that the work has been done according to the project plan. Here’s how the process works:

* Request a draw electronically: Upon completion of a project milestone, submit a draw request through Builder Loans’ online portal. This will initiate the inspection process.
* Inspection to verify work completion: An inspector will visit the project site to ensure that the work has been completed as planned. This inspection protects both you and the lender by confirming that the project is progressing as expected.
* Reimbursement for funds spent: Once the inspection is complete and the work has been verified, you can expect to receive reimbursement for the funds spent within three business days. This helps you maintain positive cash flow throughout the construction process.


Calculating Payments on Your Construction Loan


It’s essential to understand how payments are calculated on your construction loan. Payments are based on the amount drawn from your available construction loan, multiplied by the interest rate, and divided by 12 months. Here’s an example:

$100,000 (drawn amount) x 5% (interest rate) / 12 (months) = $417 (monthly payment)


Modified Owner Builder Program: Direct Control Over Funds


With Builder Loans’ Modified Owner Builder Program, all funds are deposited directly into the borrower’s checking account. This allows you to pay the general contractor, subcontractors, and materials suppliers directly from that account, giving you better control over your project’s finances.

In summary, understanding the fund control and draw process for construction loans is essential for the success of your project. Builder Loans offers tailored construction loans and the Modified Owner Builder Program to help you manage your construction project with ease. If you’re interested in learning more or applying for a construction loan, please contact us at 415-800-2190 or info@BuilderLoans.NET.