Your Lender's Inspector Works for the Bank

If you're building with a construction loan, someone from the lender usually visits the site before each draw is funded. It's easy to assume that person is checking the work for you. They're checking it for the bank.

That's a useful job, and the inspection report can tell you a lot. It just isn't a review of your project on your behalf, and knowing the difference helps you use it well.

What a draw inspection checks

The lender is advancing money against work in place. The inspector's job is to confirm that enough work is actually done to support the next advance. Typically that means walking the site, comparing progress to the builder's draw request, and estimating a percent complete for each line or for the job as a whole.

The report goes to the lender, and the lender funds the draw based on it. Every lender handles this a little differently, so ask yours how theirs works.

What it doesn't check

• Quality. Whether the tile is set well or the trim is tight isn't usually the inspector's question.
• Pricing. Whether a line item is fairly priced, or a change order is reasonable, isn't part of it.
• Your contract. The inspector generally isn't comparing the draw to your allowances, your approved changes, or your selections.
• Code. That's the building department's inspector, a different person with a different job.

So a funded draw means the bank is comfortable with the progress. It doesn't mean everything in the draw is right for you.

When the percentages don't match

Sometimes the builder's draw request shows the framing at 100% and the inspector's report shows it at 85%. A gap like that isn't automatically a problem. They may be measuring different things, or the inspector visited before the last few days of work.

But it's worth a question, because the lender will usually fund to its own number, and the difference has to come from somewhere. A calm way to ask: "The inspection report shows framing at 85% and the draw shows 100%. Can you help me understand the difference?" Often there's a simple answer.

If the gap keeps showing up draw after draw, that's the pattern to pay attention to.

Staying in balance

Many construction loans have an "in balance" requirement. The idea is simple: the money left on the loan has to be enough to finish the house. If it isn't, the lender may ask you to cover the difference before funding more.

Here's how that can look, with illustrative numbers:

Item	Amount
Loan amount	$1,600,000
Funded to date	$1,050,000
Left on the loan	$550,000
Cost to finish (contract left, plus approved changes and allowance overages)	$610,000
Gap you may need to cover	$60,000

Allowance overages and change orders are the usual way a loan falls out of balance. Each one is small enough to absorb, and together they move the cost to finish past what's left on the loan. Keeping your own running total of changes and overages means you see this coming instead of hearing about it from the bank.

Your loan documents and your lender are the source of truth on how this works for you. This is a general explanation, not financial or legal advice.

Using the inspection report well

Ask your lender for a copy of each inspection report. It's a second, outside read on progress, and it costs you nothing extra. Put it next to the draw request and your own notes from the site. When all three line up, you can pay with confidence. When they don't, you have a specific question to ask.

For what else to check before paying, see Lien waivers, conditional and unconditional and What a deposit in your draw is paying for.

Questions worth asking

• Can I get a copy of each draw inspection report?
• What does your inspector check, and what don't they check?
• Does my loan have an in-balance requirement, and how is it measured?
• When the inspector's percent complete is lower than the builder's, how do you fund the draw?
• What happens to the difference between what the builder requested and what you fund?