How Do Construction Loan Draw Work with Private Money Lenders?

How Construction Loan Draw Work with Private Money Lenders

It’s just much like a conventional construction loan

1. We ask for a line item budget

Line item budget - line by line item of the cost of the loan, including the soft costs—architectural, permits, etc.

2. from your line item budget, we create a pay app, which is basically a draw schedule

3. money is drawn on percentages when complete

So when we have our third party construction manager go out and meet with the contractor they’ll agree on a budget, on a draw that would work for the contractor and work with the lender

4. once the pay app is drawn out, simply there is usually a mobilization which is the first draw which gets the contractor, gets the first batch of materials ordered and the demo started

5. there could be a draw for grading

6. then the next draw might be when the foundation is poured

There could be anywhere from, on a basic remodel three draws, to as many as twenty draws on an extensive home

It all depends on how complex the construction is, and that would really determine on the draw schedule.

Working with a hard money lender it’s a lot easier than working with a bank—we’re pretty flexible. If everything is going right, it’s simply making a phone call and providing receipts and invoices and keeping to budget and schedule and everybody’s happy and the project is usually a success at that point.