How often are draw inspections required?

What sets the frequency.

Frequency is a policy decision, and three common patterns cover most programs:

• Per draw. An inspection before every disbursement. This is the baseline for most residential construction lending, so the number of inspections tracks the number of draws.
• Periodic. A calendar inspection on an interval the lender sets, whether or not a draw is pending. It catches stalled projects that have stopped requesting money; see progress inspections.
• Event-driven. An extra visit when something changes: a large change order, a missed milestone, a complaint, a stored-materials request or a weakening local market.

The FDIC's construction and land development examination procedures ask examiners whether inspectors are qualified and independent of the lending function, whether reports are detailed enough to support disbursements, and whether funds go out only after written inspection reports are reviewed. They do not set an interval. See how examiners review construction loan monitoring.

What the FDIC research found.

The most detailed public evidence is the FDIC Center for Financial Research working paper by Amanda Heitz, Christopher Martin and Alexander Ufier, Bank Monitoring with On-Site Inspections (CFR Working Paper 2022-09). Using transaction-level records of 28,939 multiple-draw construction loans from a single large bank, the authors report that:

• loans with more on-site inspections are less likely to default; in their estimate, moving from roughly two to three inspections per 100 days is associated with a 3.64 percentage point lower probability of default;
• negative inspection reports are associated with a higher likelihood that the bank denies a draw request;
• banks inspect less often when they already have a relationship with the borrower, and more often during local downturns.

Tulane University's research summary describes the same work. The data come from one bank, and the paper does not prescribe a schedule for any lender.

Why it matters for lenders.

Write the frequency down: which loans get per-draw inspections, which get periodic visits and at what interval, and what triggers an off-cycle inspection. Then follow it and keep the record. A written policy, applied consistently, is what an examiner or a workout team can rely on later.

How RAZE handles it.

RAZE treats per-draw, periodic and event-driven inspections as the same order with a different trigger. Lenders place each one in the Ordering Engine, route it to their own inspectors through Direct Request or to RAZE Marketplace coverage at any U.S. address, and receive the same standardized report every time, so the inspection history on a loan reads as one consistent record.