Draw
Definition and meaning of Draw in real estate.
Draw is a scheduled release of funds from a construction loan or line of credit to pay contractors, subcontractors, or suppliers for completed phases of work. These disbursements occur sequentially as project milestones are met.
In more detail
Lenders structure construction loans with a draw schedule to ensure that funds are released only when specific work is verified. Before a draw is approved, the lender usually sends an inspector to the job site to confirm that a milestone, such as pouring the foundation or installing drywall, is complete.
This process protects the lender from overpaying before the project is finished and prevents builders from mismanaging project funds. Interest on the loan typically accumulates only on the amount of funds that have been drawn, rather than the entire loan limit.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Trigger | Completion of specific construction milestones |
| Verification Method | Professional site inspection |
| Also Known As | Construction draw |
A home builder requests a disbursement from the buyer's construction loan to pay the framing crew once the home's wood structure is successfully erected.
Frequently asked questions
How many draws are typically allowed in a construction loan?
The number of draws varies depending on the complexity of the project, but most residential construction loans allow for several scheduled releases.
Who receives the draw money?
Funds are typically paid directly to the general contractor, or sometimes directly to subcontractors and suppliers to prevent payment disputes.
What is a draw inspection?
A draw inspection is a site visit by a representative of the lender to verify that the work outlined in the draw request has been completed satisfactorily.
Related terms
Sources & references
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