For new construction the Working Capital Escrow is 4% of the mortgage amount with 2% set aside specifically as a construction contingency to cover construction cost overruns and change orders and the other 2% to cover excess soft costs or costs of putting the project in operation. For substantial rehabilitation, the Working Capital Escrow is 2% (a construction contingency is permitted in
the construction costs of substantial rehabilitation projects). Substantial rehabilitation projects with Section 8 rental assistance for more than 90% of the units do not require a Working Capital Escrow when
the Lender demonstrates there will be sufficient income generated by the property during the rehab period to cover items typically funded by the Working Capital Escrow and when interim income is not being used as a source of financing.