What is a construction-to-permanent loan draw?

Two phases, one or two closings.

A construction-to-permanent loan finances the build and the long-term mortgage together. In a single-close version, one closing covers both phases and the loan converts when the home is complete. In a two-close version, a construction loan is followed by a separate permanent loan with its own closing. Regulation Z lets the creditor disclose the construction and permanent phases as one transaction or as separate transactions (12 CFR 1026.17(c)(6)(ii)), and Appendix D gives a method for estimating disclosures on multiple-advance construction loans.

How draws work in the construction phase.

The lender holds the construction budget and releases it on a draw schedule. Each draw follows a request from the borrower or builder, an inspection of the work in place and, depending on the lender's policy, a title update and lien waivers. The final draw usually waits for a final inspection and, where the jurisdiction requires one, a certificate of occupancy. Our post on the final draw on a construction loan covers what to collect.

Why it matters for lenders.

The permanent loan depends on a finished house. The FDIC's construction and land development examination procedures ask whether the undisbursed loan balance is enough to complete the project, because a budget drawn ahead of the work leaves too little to finish it. Conversion is where construction risk becomes mortgage risk, so the evidence behind each draw, and the last one most of all, carries into the permanent file.

How RAZE handles it.

RAZE draw inspections report percent complete for each draw sheet line, with photos linked to the lines they support and GPS coordinates and date and time stamps on every photo, so the lender can see how far each budget line has progressed before releasing the next draw. Through RAZE it is a flat $125 per single-family inspection when RAZE sends the inspector, or $25 per request with your own inspector, per the RAZE Rate Card. RAZE documents the work; the lender decides each release and the conversion.