McDonnell Group Practical Guide to Renovation Loans 4.13.18 - Flipbook - Page 7
WHAT HAPPENS AFTER CLOSING?
Renovation Funds
Disbursement
Funds Disbursement. Once the renovation loan has funded, repair funds
will be wired to a renovation escrow account controlled by the Lender.Repair
draws are made on an as-needed reimbursement basis. City permitsshould
already be in place and the General Contractor should start work
immediately.
An initial disbursement is made at closing and includes the payoff of existing
mortgages & related closing costs (refinances) and/or initial construction fees
(permit fees, architect fees, etc).
Draw reimbursements over the course of the project are requested by the
Contractor. The number of disbursements will be established early, up to a
maximum 5 draws. The HUD Consultant or Contractor will submit a draw
request to the Lenders' renovation draw department. Upon receipt, the
Lender requests a progress inspection be made by the HUD Consultant.
After the Consultant verifies the construction has been completed properly,
the draw department is notified and a dual-signature check is then issued to
the Contractor (deposit requires signatures from both homeowner and
Contractor).
Homeowners Insurance
Requirements
During the renovation process there are additional risks. Therefore,
insurance requirements for a renovation loan are slightly different than a
traditional loan. There are four principal requirements for insurance on
renovation loans:
Course of Construction Casualty Insurance. This policy is in the form
of an "all risk" policy with fire, extended coverage, builder's risk,
replacement cost and vandalism/malicious mischief insurance coverage. The
owner is named as insured with insurable value equal to the replacement
cost of the improvements or the loan amount, whichever is lower. Once the
project is complete the course of construction policy is usually converted toa
standard homeowner's policy.
Workers' Compensation Insurance. This endorsement covers the
GeneralContractor and his employees who will be working on the project.
TheContractor provides this policy. In States where workers compensation
insurance is not required or the Contractor doesn't have employees a waiver
is required.
General Liability Insurance. This is a comprehensive general policy
provided by the Contractor for at least $1,000.000.
Flood Insurance. Flood insurance is mandatory on all loans if any of the
subject property improvements lie in a specified Flood Zone. Your Lender
can provide you detailed information on flood zone determination.
To learn more, call us at 714.559.3696 or visit us
online at www.financemyimprovements.com
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