📘 What is a Draw Inspection?

A draw inspection is a site visit conducted by a third-party inspector to verify progress on a construction or renovation project before funds from a construction loan are released. It ensures that completed work aligns with the construction schedule and budget.

Lenders rely on draw inspections to determine whether to approve a “draw,” or partial release of loan funds, as construction advances in stages.

📌 When and Why It’s Used

Draw inspections are typically used in real estate development projects that involve construction loans. Since these loans disburse funds in increments rather than a lump sum, each release requires confirmation that specific milestones have been met.

These inspections protect lenders from releasing funds too early and ensure that work is being completed to standard. For investors, they provide accountability and help avoid disputes with contractors.

🧮 How It’s Calculated or Applied

The inspector assesses the project on-site, comparing completed work to the submitted draw schedule and contractor invoices. A percentage completion is assigned to each line item, and the lender uses this data to determine the approved draw amount.

While there’s no strict mathematical formula, the calculation is often based on percentage completion per budget item.

✅ Pros

• Helps ensure loan funds are used for completed, verified work
• Reduces risk of fraud or mismanagement during construction
• Builds trust between lenders, contractors, and investors

⚠️ Cons

• Can delay fund releases if inspections are not scheduled promptly
• May involve additional costs for the investor or borrower
• Minor discrepancies can trigger disputes or require reinspection