Staggered Disbursements
The loan funds are disbursed, or “paid out,” in stages. A typical construction loan structures four (4) disbursements, each of which will only come as certain stages are undertaken or completed. With most construction loans, the four disbursements are often divided as follows:
1. Foundation
2. Under roof and enclosed to weather
3. Roughed-in and drywalls
4. Final stage
An inspection by the lender’s appraiser or construction administrator is normally performed prior to each draw request. These inspections are meant to ensure that all work required before each particular payment is complete and finished in a satisfactory manner. The charge for the inspections is normally billed against the disbursement. The disbursement may come at the beginning or conclusion of each stage, depending on the lender and contractor.
First disbursement
The first disbursement is normally for the foundation of the property. Before proceeding to the next stage, the lender will usually send its property
inspector to ensure that the ground has been prepared and the foundation has been poured according to the specifications indicated in the approved
blueprints and schematics.
Second disbursement
The second disbursement is for the building structure, usually including the roof and exterior walls. Again, all work must be performed according to the
approved schematics and contract. Minor changes are often allowed; however, major changes or adjustments require additional lender underwriting approval.
Third disbursement
The third disbursement is for the interior elements of the structure, including floors, drywalls, ceilings, doors and windows. The contractor’s agreement will
normally indicate specific products and brands, which must be strictly met. Some elements of this stage often overlaps with the second and fourth stages, depending on the construction’s progress.
Fourth disbursement
The final disbursement is for finishing tasks, such as painting, carpeting and woodwork. Essentially, this final stage is responsible for preparing the house for completion, possession and legal occupancy. In some cases, the final disbursement may be conducted at the closing of the permanent refinance loan.