Draw Schedule for the 100K House Project

Since we just closed on the land and the construction loan, why not get into a bit of the details of the loan from Independent Mortgage Company. This may be dull for most of you, but I know some of our readers are very interested in the financing aspects of a new development project and just how construction loans differ from typical mortgages.

First the basics of the loan terms:

  • Rate = Prime + 2%
  • 2 Points in loan fees
  • 1 point on the gross sale of the corner (120K) house.

These terms are a bit higher than normal due to the fact that this is our first project as a development company. These rates should go down on subsequent projects, assuming the first project is not a massive failure for some reason.

New Builder Contracted for the 100K House Project

Next comes the dispursement of the actual money for the construction of the house.  At settlement on the land last week, the bank paid for about 75% of the land. We had to foot the rest of the bill in cash and also pay for 100% of our soft costs on the project to date which is around $25K.

The construction loan is then given to the general contractor in a series of seven draws throughout the project. The bank will come out to inspect the homes and make sure everything is completed before cutting the check for that phase. The GC handles disbursing payments to all of the subcontractors as well as material vendors. The GC’s fee also comes from these draws, so it is in both of our interests to stay on budget to make sure our profit margins are in tact at the end.

We had to negotiate a bit with the bank on the draw schedule due to the up front cost of the SIPs. Below is what the final draw schedule turned out to be. The terminology for each phase is from the bank so not everything applies to our project (ie. we have no garages):

Budget & Schedule Update Meeting with Brian the Builder

Draw Schedule for 100K House Project

Draw #1: 10% at closing.

Draw #2: 15%

  • Building permits
  • Excavation
  • Rough Grading
  • Footings and Foundations

Draw #3: 20%

Budget & Schedule Update Meeting with Brian the Builder
  • Exterior Walls Sheathed
  • Rough Framing
  • Inside Partitions
  • Roof Sheathing
  • Window/Door Frames
  • Insulation

Draw #4: 22%

  • Rough HVAC
  • Rough Electrical Wiring
  • Rough Plumbing, Tubs & Shower Set
  • Exterior Siding
  • Basement & Garage Floor
  • Roof Completed

Draw #5: 20%

  • Drywall
  • Cabinets & Countertops
  • Interior Painted
  • Finish Floor
  • Exterior Completed
  • Garage Doors
  • Interior Trim
  • Ceramic & Sheet Tile

Draw #6: 10%

  • Water & Sewer Connect
  • Final HVAC
  • Walks & Entries Complete
  • Carpeting
  • Finish Plumbing
  • Finish Electric
  • Appliances Installed
  • Driveway, Apron, Sidewalk
  • Final Grade
  • Landscaping

Draw #7: 3%

Since we closed last week the first draw on the construction loan has been dispersed. Most of it went towards our 50% downpayment required on the SIPs and the remainder went to our GC to begin work. We will be meeting tomorrow afternoon to discuss the schedule for the project in more detail.