What does your insurance company have to pay you for labor and materials if you choose to make repairs yourself instead of hiring a contractor because you work in the construction industry?

Usually an insurance adjuster comes to your home, evaluates the damage and sets the amount to repair the damage, considering cost of needed materials and customary labor fees. Here's the problem. Remember, you probably have a mortgage loan. Your mortgage company is very interested when damage has been done to the home they loaned you money to acquire. They want the repairs done right to prevent loss to the property value. In fact, the insurance agent may inform your lender that a loss was suffered.

It's the Mortgage company that will require you to provide the insurance adjusters report, a cost estimate from a licensed contractor, proof the work has been done by demanding you have the contractor sign a Waiver of Lein and they may even send an inspector to your home to validate the repairs were done properly. Here's what to expect. Depending on the amount of damage, I am going to use the guidelines Fannie Mae uses, if $5,000.00, you won't receive the full amount of the loss draft check. That's right, you might receive just enough to get the work started.

Wait, let me back up a minute. The insurance loss draft check will always be made payable first to your mortgage company, and then to you as secondary, (unless the damage is minimal or under $1,000.00). So, you won't be able to cash the loss draft check if the damage is more than $1,000.00 to repair. Your lender must endorse the check before you get any of that money. Sometimes, depending on the costs to repair the damage, usually $5,000.00 or more, your lender may retain a larger portion of the loss draft monies and release funds only if the contractor can substantiate why their original estimate was understated.

The balance of the loss draft is usually released after the mortgage company receives a Waiver of Lein from the contractor, meaning the work is done and the contractor won't put a lien against the home because the homeowner is paying him in full with the loss draft monies the lender held until the job is complete.

It is between you and the contractor if his price is more or less than what the insurance adjustor paid on the loss draft. The lender has the right to hire their own contractor to perform the repairs if your contractor charges too much or is not licensed. The lender controls the loss draft disbursments when all their requirements are met. Licensed contractors are well aware of this game and do not expect payment in full until they are finished with the work. They also know their work is subject to inspection by the lender. Some lenders do not charge for the final inspection, some do. The homeowner pays for the lenders that charge for an inspection.

Mortgage companies may ask your contractor for credentials, so if you do the work yourself, you must have the proper license.