Now that you have the approval of your construction loan, how do you receive it to start building your new home? There are two ways the funds are released to the builder: the Voucher Reimbursement system and the Draw Reimbursement system.
The Voucher Reimbursement System
This old system has been in effect for quite some time. Lenders do not like the system because it involves piles of paperwork to shuffle through. Builders are comfortable with the system and prefer things to stay as they are.
How the Voucher Reimbursement system works:
• The builder is given a large payment book and in order for anyone to be paid, they have to request payment through the voucher
• An inspection needs to be completed before any funds are released
The Draw Reimbursement System
The Draw Reimbursement system is the better way of paying out funds to builders. This method also allows the homeowner or contractor to be in control of handling the money. The bank or financial institution takes the cost breakdown of the home’s construction and schedules a certain amount of draws based on the results. A draw is a release of funds based on a set schedule or as work is completed throughout the building process. The schedule can be weekly, bi-monthly, or monthly. Some bankers even allow the builder to be paid at anytime as long as the work is completed.
Benefits for the Draw Reimbursement system include:
• The homeowner and builder have better control
• Easier and less work
• Direct deposit for the builder when funds are released
Choosing the right system depends on what will work best for the homeowner. Whichever system they choose, they should make sure that they hire a builder who will accept it. Everything, including payment methods, should be gone over before getting started.
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