Question

Construction loans are paid out in

a. full at the beginning of construction.
b. equal installments during the construction process.
c. full upon completion of construction.
d. draws after specific stages of construction have been completed.

Answer 1

Construction loans are disbursed in draws after specific construction stages are completed, which helps lenders manage risk by ensuring progress before additional funds are released.

Step-by-step explanation:

Construction loans are typically paid out in draws after specific stages of construction have been completed. This system is designed to ensure that the construction is progressing as planned before more funds are released. By doing this, lenders can manage their risk by only paying for completed work. It is unlike a traditional mortgage, where funds are generally disbursed in a lump sum at the beginning. A construction loan provides periodic disbursements of funds based on the completion of predetermined phases of the construction project, which are verified by inspections.