Draws for New Construction

Understanding how draws work is very important. Once you’ve been approved for a construction loan, your loan acts as a line of credit from which your builder will draw money as the project moves forward.

You and your builder signed very specific documents with the bank that outline various responsibilities for both of you; you will want to read those documents and make sure you understand them. Ultimately, you are responsible to your bank for your project. Your builder has a fiduciary responsibility to your bank as well but the bulk rests on you.

Your builder may request what’s called a soft draw. This is a draw that takes place at the beginning of the project and is money for things like permits, land excavation, boundary surveys, etc. You’re looking at about $6000 as a soft draw.

The remaining draws occur AFTER work has been done. Your bank will outline how many draws they anticipate. Whenever your builder makes a certain amount of progress on the build, he/she will submit a draw request to your bank for a specific amount of money. The builder will assign the request to the budget items that were submitted to your bank and indicate how much money they want to draw from the budget item. Once the bank reviews the request, they will indicate that they approve the draw and then will require you to approve the release of money.

It is very important that you understand that once you release the money, you are telling the bank that you have reviewed everything and confirm that the work is done and the money is owed. Make sure, if you are doing a “Cost Plus” contract with your builder, that you are getting invoices and receipts. I cannot emphasize how important this is. This is the only way to ensure that you are on track and that your builder is not trying to saddle you with costs that are associated with other projects he/she may be working on.

Before the bank approves the draw, they send an inspector to the house to confirm the work has been done. Be aware that you pay for those, so you want to keep the number of inspections down. You may want to discuss with your builder how many draw requests will be made so that you know how many inspections will be billed to you.

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© 2017 by Martha Beaudry. All information is subject to change and should be independently verified. Copyright© 2017, HOUSTON REALTORS® INFORMATION SERVICE, INC. All Rights Reserved. Texas Real Estate Commission Consumer Protection Notice. Texas Real Estate Commission Information About Brokerage Services.