Construction Loans and Draw Schedules
Construction loans are not fully advanced at the time of closing, rather the lender advances an amount to pre-fund an ‘interest reserve’ account, which will be used to make the loan’s monthly interest payments until construction is complete.
- The borrower is required to provide a budget to help the lender track how much money has been advanced from each line item in the budget.
- The construction draw schedule determines how and when construction loan funds are distributed.
In a construction draw inspection, the lender hires a professional inspector to visit the construction site and assess progress.
What is the draw inspector looking for?
- Verify any materials that are stored on-site
- Confirm work is active
- Compare the work progress from the last visit to current levels
- Compare the work progress to the amount of work billed on the draw
Steps to conducting a draw inspection
- Builder submits a draw request to the lender
- Lender hires a 3rd party inspector to complete draw inspection
- Inspector visits the site and assesses construction progress, contacting the site superintendent or builder to schedule, if an appointment is necessary.
- Inspector compiles a progress report and pictures of the site to return to the lender for verification.
- The goal is to have the inspection completed as soon as possible after the draw is submitted.
How to ensure a timely draw inspection
- Avoid overbilling – Submit draw requests only for the work that will be completed by the end of the billing period
- Cooperate – The inspector does not want to hold up payment and if you work with them, they will work with you
- Be upfront – Inform the inspector about any delays or issues on the project so everyone involved knows what’s going on
