Summary of the Inspection Process

Gabriel Mikael
Apr 14
4 min read

The inspection process is a critical step in the progressive loan disbursement for a home construction loan. Banks require inspections at different stages of construction to ensure that the project is progressing as planned and that the loan funds are being used appropriately. Here's an overview of how inspections work:

1. Purpose of Inspections

Why It Matters: Inspections provide the bank with a way to verify that the construction is on track and aligns with the approved plans and timeline. This ensures that the loan funds are being used properly and that the project is progressing according to schedule.
What the Bank Checks: The bank's appraiser or inspector will assess the following:
- Current stage of construction (e.g., foundation, framing, roofing, etc.)
- Quality of work and adherence to building codes
- Percentage of completion relative to the overall project
- Whether the project matches the approved construction plans
Pro Tip: The bank uses the inspection report to determine whether to release the next loan tranche. A successful inspection means the project is on schedule and funds will be released for the next phase of construction.

2. Timing of Inspections

When Inspections Occur: Inspections happen at key milestones during the construction process, usually after major phases of the build are completed. Here’s a typical schedule:
1. After Foundation is Laid: The first inspection usually occurs after the foundation is complete.
2. Structural Framework: An inspection is conducted after the structural framework (walls, beams, etc.) is completed.
3. Roofing and Exterior Work: When the roofing and basic exterior finishes are done, another inspection takes place.
4. Finishing Work: The final inspection happens after interior and finishing touches are completed (e.g., painting, plumbing, electrical).

3. Who Performs the Inspections?

Bank’s Appraisers or Independent Inspectors: The bank usually hires a third-party appraiser or licensed engineer/architect to conduct the inspection. In some cases, larger banks may have their own internal team.
What They Look For:
- Construction progress: Ensures the work is aligned with the percentage of completion needed for the next tranche.
- Quality of materials and workmanship: Verifies that the quality meets industry standards and building codes.
- Any deviations from the approved plans: Significant deviations may require adjustments or explanations from the borrower or contractor.
Pro Tip: Stay in touch with your bank to confirm who will perform the inspection and schedule it promptly once a construction phase is complete.

4. Preparing for an Inspection

Why It’s Important: A smooth inspection ensures that the next tranche of funds will be released on time, so it’s important to prepare properly.
Action:
- Coordinate with Your Contractor: Ensure that the phase of construction is fully completed and up to code before scheduling the inspection.
- Organize Your Documentation: Have the approved building plans, permits, and any change orders ready in case the inspector needs to review them.
- Be Present During the Inspection: If possible, attend the inspection with your contractor. This helps to address any questions or concerns the inspector may have on the spot.

5. How the Bank Decides to Release Funds

Inspection Report: After the inspection, the inspector or appraiser submits a report to the bank outlining the current stage of construction, any issues, and the percentage of completion. The bank will then use this report to decide whether to release the next tranche.
Release of Funds: If the inspector confirms that the construction phase is complete and meets the bank’s requirements, the next loan tranche will be released. This usually happens within 5–10 business days after the successful inspection.
Pro Tip: Make sure your project is ready for inspection before scheduling it. Any issues or incomplete work may cause delays in disbursement.

6. What Happens if the Inspection Fails?

Why Inspections Fail: Inspections may fail for several reasons, such as:
- The construction phase is not completed as expected.
- The work does not meet building codes or quality standards.
- There are deviations from the approved construction plans.
Action:
- If the inspection fails, the inspector will detail the issues that need to be addressed before the next tranche can be released.
- Work with your contractor to rectify the issues and schedule a follow-up inspection once the corrections have been made.
Pro Tip: Delays in completing phases or failing inspections can slow down the release of funds. Stay in constant communication with your contractor to minimize delays.

7. Final Inspection and Completion

Final Inspection: The last inspection usually occurs when the construction is nearly or fully completed. The inspector will assess the final touches, such as the interior finishing, plumbing, electrical, and other installations.
Certificate of Completion: Once the final inspection is successful, the bank may request a Certificate of Completion from your contractor or local government. This confirms that the project has been built according to approved plans and meets all regulatory standards.
Final Disbursement: After the final inspection is approved, the bank releases the last tranche of the loan, typically covering the final costs like finishing touches, interior work, or landscaping.

Tips for Smooth Inspections:

Keep Your Project on Schedule: Ensure that your contractor is aware of the tranche release schedule and completes each phase on time.
Stay Proactive with Permits and Documentation: Any missing permits or improper documentation can cause delays in inspections and disbursements.
Work with a Reliable Contractor: A reputable contractor with experience in handling construction loans will understand the importance of timely and accurate inspections.
Maintain Clear Communication: Regularly check in with your loan officer, contractor, and the inspector to keep everyone aligned with the project timeline.

Summary of the Inspection Process:

Stage	What’s Inspected	Outcome
Initial Inspection	Foundation completion, permits, and initial work	Determines release of first tranche (20%-30%)
Mid-Project Inspections	Structural work, roofing, walls, plumbing, electrical	Determines release of subsequent tranches
Final Inspection	Interior finishing, painting, landscaping, full project completion	Release of final tranche, project close-out

Inspections are a key part of ensuring that your construction project is progressing as expected and that the bank can release funds at the right time. Keeping your contractor on schedule, being present during inspections, and maintaining communication with your bank will help ensure smooth disbursements and avoid delays.