How lenders verify percent-complete.

What "percent-complete" actually measures

A construction draw releases the next slice of your loan only against work the lender can verify is in place. The verification is not "does it look further along than last time" — it is "what percentage of the contractually-agreed Schedule of Values has been physically installed."

That distinction is the source of most draw friction. A borrower sees the roof go on and assumes they are 60% complete. The lender sees that roofing is one line in a 24-line Schedule of Values worth 6.5% of the budget, and the framing line above it is still 30% open because the punch list is not closed. The wire is sized against the lower number, not the higher one.

Percent-complete also is not the same as percent-spent. Money already paid to a contractor for work not yet installed does not advance your draw. This catches first-time GCs constantly: they wire a supplier deposit on cabinets, expect to draw against it, and discover the lender does not fund deposits — only installed work.

Who the inspector is, and why they are not on your side

The third-party inspector is hired by the lender, not the borrower, even though the inspection fee shows up on your closing statement. The independence is structural: the inspector's next job depends on the lender's next phone call, not yours. They are paid roughly $250–$450 per inspection, regardless of whether they approve the full draw or only a partial.

The typical inspector is a licensed general contractor or a former municipal building inspector who does this part-time. They have walked dozens of ground-up SFR projects, and they know exactly where first-time borrowers compress the timeline on the application versus the site. The job is not to slow you down. It is to defend the lender against funding work that has not happened — because if the project stalls and the lender has to take it over, the variance between the funded amount and the in-place value is the lender's loss.

You almost never meet them. They show up unannounced or with 24-hour notice, walk the site for 45–90 minutes, take 30–60 photos, fill out a one-page form keyed to your Schedule of Values, and the report is in the lender's inbox by the next business day.

How they count: line-item against the Schedule of Values

The inspection report is not a single percentage. It is a percentage per line. Your draw request states a percentage per line. The two get compared, and the lender funds the lesser of the two for each line, totaled across the entire SoV.

Worked example. Your Schedule of Values has these eight lines (compressed; real ones run 18–30 lines):

You asked for $256,000. The inspector clipped two lines (framing at 85% because the punch list still has the stair stringer; plumbing at 55% because the second-floor rough is not pressurized yet). The wire is for $242,000 minus any retainage and minus the prior draws already disbursed. That delta — the $14,000 shortfall — is your most common source of friction with subs, who expect to be paid on what they invoiced, not on what the inspector verified.

Important nuance: the inspector almost never goes above your requested percentage. If you ask for 60% on a line that is actually at 70%, you get 60%. The unrequested 10% sits in the line until your next draw. Inspectors are not running a math optimization on your behalf.

The four rejection patterns that kill draws

1. Mixed-trade overdraws on a single line

The single most common reject. You bundled cabinets and counters into one "interior finishes" line at 100%, but the counters are not installed yet. Inspector flags the line at 60%. The whole line gets clipped — not just the counters portion — because the SoV does not give the inspector a way to split it.

Fix: when you draft the Schedule of Values pre-close, split bundled lines. "Cabinets" gets its own line. "Counters" gets its own line. Twenty-eight lines fund faster than fourteen lines every time, because each line clips independently.

2. Out-of-sequence completion

You poured the driveway before the final grading. Inspector cannot fund the driveway line because the grading-and-flatwork line above it is still 70%. Most SoVs have implicit sequencing rules; the inspector enforces them.

Fix: if a sequence change is intentional (a weather window, a sub availability), call the lender before the draw and have it noted on the prior-draw acknowledgement. The inspector then knows to score the lines independently.

3. Missing permits or inspections

The rough plumbing went in, but the city plumbing inspection has not happened yet. Inspector scores the line at 90% complete — every dollar of work installed — with the explicit note "pending municipal sign-off." The lender holds 10% retainage against that line until the municipal inspection passes. Same pattern for framing (county framing inspection), electrical rough, and any sub-trade that has a code-enforcement gate.

Fix: stagger your draws so a line is fully municipally-approved before you request its final 10%. The retainage line is not negotiable on most lender programs.

4. Materials sitting around vs materials installed

The flooring is on pallets in the garage. You billed 100% on flooring. Inspector funds 0% on flooring because nothing is installed. The pallets count toward stored materials (worth roughly 50–60% of the line value, with documentation) but only if they meet the lender's stored-materials rules — see the next section.

Fix: never request a line percentage on uninstalled materials. Use the stored-materials line if it exists in your loan documents; otherwise wait until install.

How to structure your contractor agreement so draws move fast

The draw process is downstream of the contractor agreement. A well-structured agreement lubricates draws; a poor one creates a 4–6 week delay on every cycle. Three structural decisions matter more than the contractor selection itself.

Lump-sum vs cost-plus vs AIA

Lump-sum agreements ("$420,000 for the whole project") give the contractor an incentive to understate percent-complete on lines they have not started, so the cash arrives later. AIA-format agreements (G702/G703 pay applications) give the contractor a structured format the inspector recognizes and can score line-by-line in 30 minutes. AIA also lets the contractor and inspector use identical line numbers, which eliminates the most common dispute.

Use AIA format on any project above $250,000 of construction budget. Below that, a simple line-item agreement that mirrors AIA is sufficient.

Retainage built into the agreement

Lenders hold retainage on every draw — typically 5–10% — until the project hits substantial completion. If your contractor agreement does not embed the same retainage downstream to subs, the contractor wears the timing gap themselves and will eventually demand a "draw-bridge" payment from you. Better: have the contractor's agreement with subs explicitly mirror the lender's retainage schedule. Less friction.

Mechanics-lien releases as a draw precondition

Every draw past the first one should require the prior period's lien releases from every paid sub. Lenders fund the next draw faster when they see the prior releases attached. A contractor who fights this is signaling something — usually that they have not actually paid the subs they invoiced for.

When stored materials count toward a draw

Materials on-site but not yet installed sit in a category the industry calls "stored materials" or "stored values." Whether they advance a draw depends on the lender's program, but the universal preconditions are:

• On-site or in a bonded local warehouse, not at the supplier or at the contractor's yard.
• Itemized invoice showing what was bought and at what unit price.
• Insured under the builder's risk policy with the lender as loss payee.
• Secured against theft — locked storage container, secured garage, or fenced and watched.
• Funded at a discount to the line value: typically 50% on lumber, 60–70% on millwork, 75–80% on fixtures and appliances.

Stored-materials funding is most common on lines with long lead times — windows, custom millwork, kitchen packages. It is rare for stick-built lumber because the discount is so steep it is not worth the paperwork. If your project has a $40,000 custom-window order with a 12-week lead time, the stored-materials line is the difference between paying for them out-of-pocket and rolling them into the loan.

The draw is not paid against the work you have done. It is paid against the lesser of the work you have done and the work you asked to be paid for.

When the inspector and you disagree

You will eventually. The inspector will score a line at 80% that you and your GC both believe is 95%. The right way to push back is structured.

Within 48 hours of receiving the inspection report: have your GC submit a written rebuttal with dated, geotagged photos of the in-place work, organized by line number. Reference the specific punch-list items the inspector flagged and either show them completed or explain why they are not in scope for this draw cycle.

Most rebuttals do not result in a re-inspection. The inspector's manager reviews the photos and either updates the report (cheap, common) or schedules a re-inspect for the next cycle (rare, expensive — you wear the $250–$450 fee). Phone calls between you and the inspector are not productive. The chain of authority is borrower → lender draw analyst → inspector's firm, not borrower → inspector.

If the rebuttal genuinely fails and the inspector's number is wrong, the appeal goes to your loan officer, who has discretion on small adjustments. Save the appeal for material disputes (>$5,000 of disputed value); spending political capital on a $1,200 dispute is a bad trade.

The carrying-cost math on slow draws

Every business day a draw sits in the rebuttal queue costs you interest on funds you have already deployed plus opportunity cost on funds you have not yet received. On a $400,000 construction loan at 10.5% APR, every day of draw delay costs roughly $115 in interest carry, plus whatever your contractor charges in penalty interest (typically 1.5% per month on the unpaid balance, or roughly $200 per day on a $400K project at 60% completion).

That is why the structural moves above (line-item SoV, AIA format, embedded retainage, lien releases) are more valuable than the contractor selection. A great contractor with a bad agreement is a draw delay every six weeks. A merely-good contractor with an AIA agreement and a 28-line SoV ships draws in five business days, every time.

Most of our construction loans — see our construction program for the eligibility detail — turn the first draw in 5 business days from request to wire, and subsequent draws in 3–4. When draws stretch past 10 days, the problem is almost always upstream: missing lien releases, an SoV that bundles too many trades into single lines, or a contractor who is sending pay applications by email PDF instead of the lender's draw portal.

For ground-up builds with structural complexity — small-balance subdivision, infill, anything with retaining walls — send the SoV draft to the lender for review before final contract execution. We will mark up the lines that bundle too many trades and flag the trade sequence the inspector will enforce. Run a quote with a draft SoV attached and we will reply within four business hours.

Glossary

Schedule of Values (SoV)

The line-item budget breakdown that maps your total construction cost to individual trades and phases. Lenders pre-approve the SoV at close; the inspector scores each line independently at each draw.

Percent-complete

The fraction of physical work in place on a given Schedule-of-Values line, measured at the time of inspection. Distinct from percent-spent (money out) and percent-billed (invoices issued).

Stored materials

Itemized building materials physically on site or in a bonded warehouse, secured, insured, and not yet installed. Eligible for draw funding at a discount to line value when the loan program permits.

AIA G702/G703

Industry-standard pay-application forms issued by the American Institute of Architects. The line-item format the inspector recognizes; using it cuts draw friction materially.

Retainage

A portion of each draw (typically 5–10%) the lender holds back until substantial completion. Acts as the lender’s leverage to ensure the project is finished, not just begun.

Substantial completion

The point at which the building can be occupied for its intended use, even if minor punch-list items remain. Triggers retainage release on most construction loans.

Punch list

The list of incomplete or defective items that must be corrected before a phase is considered complete. The inspector reads it line by line.

Mechanics-lien release

A signed document from a subcontractor confirming they have been paid for work through a specific date. Required by most lenders before subsequent draws release.

Builder’s risk insurance

Policy covering the structure and on-site materials during construction. Lender is named as loss payee; required for stored-materials funding.

Frequently asked questions