An Initial Draw Authorization is the critical first disbursement in a construction loan, providing the necessary funds to start your building project. Unlike traditional mortgages that disburse the total loan amount at once, construction loans release money in stages called “draws” tied to project milestones.
To receive the initial draw, you must meet specific lender requirements such as obtaining building permits, finalizing architectural plans, securing builder’s risk insurance, and often purchasing the land if included in the loan. Once these conditions are satisfied, you or your builder requests the initial funds with an itemized use outline.
The lender verifies compliance by reviewing documentation, including approved permits and contracts, and typically conducts a site inspection to ensure readiness. Funds are then disbursed, usually directed to the land seller, builder, or subcontractors—not directly to the borrower.
Funds from the initial draw commonly cover land acquisition, permit fees, site clearing, grading, foundation work, and initial contractor mobilization expenses. This initial funding phase sets the foundation for subsequent draws and keeps your project moving according to schedule.
Documentation such as lien waivers — which confirm payments to contractors and protect against property liens — invoices, and progress reports are required to maintain transparency and lender confidence. These protect both parties and ensure funds are allocated to approved uses. For more detail on lien waivers, see our Lien Waiver Agreement.
Common issues delaying an initial draw include missing permits, incomplete paperwork, underestimated costs, and communication breakdowns with the lender. Preparing thoroughly can prevent costly delays.
To learn about managing your loan throughout construction, see our article on Construction Loan Monitoring.
For authoritative guidance, refer to the Consumer Financial Protection Bureau’s resources on Construction Loans.
By understanding the Initial Draw Authorization process, you ensure your construction project begins smoothly and stays financially on track from the very start.
