First Draw on a Construction Loan: What to Verify

The first draw is the initial disbursement on a construction loan. It often covers permits, site work or a land payoff, and it is frequently subject to extra documentation requirements. It is also the draw with the least built work to look at.

This guide covers what a lender checks before the first money moves and what the first inspection is for. The draw schedule and how many draws a construction loan has have their own pages. Nothing here is legal advice. Lien priority and recording rules depend on state law, so confirm them with counsel.

Programs differ. On a Fannie Mae HomeStyle Renovation loan, the Selling Guide lets the lender fund up to 50 percent of the total planned renovation costs as an initial draw at closing, and part of that draw may pay for permits, architect fees and design or planning costs. Many lenders pay rehab draws after the work is done, and some advance part of the first draw. A lender's own policy should say which it does, by loan type.

Florida shows why the order matters. Section 713.13 of the Florida Statutes requires an owner to record a notice of commencement before beginning an improvement and to post a certified copy at the job site. Under Florida's priority rule, construction liens attach as of the recording of the notice of commencement, so a notice recorded before the lender's mortgage puts every contractor's lien ahead of the lender's lien. Construction lenders in Florida record the mortgage first and the notice second, and the first draw inspection often confirms the posted notice and the permit before any money moves. The notice of commencement page and the lien waivers guide cover the rest.

Put the first-draw checks in the draw inspection policy: what the first draw may pay for, what must be in the file before it funds, who orders the first inspection and whether it must be independent. The draw inspection checklist covers what to look for at each stage after that, and the final draw guide covers the other end of the loan.

RAZE documents; the lender decides. The lender sets the required questions and photos on each order in the Ordering Engine, so a first-draw order can ask for the posted notice, the permit and the condition of the site. Every photo carries GPS coordinates and date and time stamps and links to the draw sheet line it supports. RAZE takes orders at any U.S. address, and the report is the same whether RAZE sends the inspector through Marketplace or the lender sends its own through Direct Request. RAZE does not approve, deny or fund draws.