The loan agreement requires an inspection before each construction draw. What is the inspection's principal role in the draw process?
Correct Answer
D) To verify that work supporting the requested advance has been completed
Why this is correct: The inspection's principal role in a construction draw process is to verify that work supporting the requested advance has been completed. This is a core principle of construction loan draw control. The inspection provides documented confirmation that the construction progress aligns with the draw schedule, ensuring loan funds are disbursed only for work actually performed, which protects the lender's collateral and ensures the project advances as planned. Why the other choices are wrong: The option "To replace the title search permanently" is incorrect because inspections are for verifying work completion; title searches are separate procedures to confirm ownership and lien status. The option "To set the borrower's credit score" is wrong because inspections assess physical construction progress, not borrower creditworthiness, which is determined by credit reports and underwriting. The option "To determine the permanent loan's APR" is incorrect because the Annual Percentage Rate (APR) is a finance charge calculation based on loan terms, not on physical inspection results. Exam tip: Remember that construction loan inspections are about verifying completed work for disbursement, not about credit, title, or interest rates.
Why This Is the Correct Answer
Why this is correct: The inspection's principal role in a construction draw process is to verify that work supporting the requested advance has been completed. This is a core principle of construction loan draw control. The inspection provides documented confirmation that the construction progress aligns with the draw schedule, ensuring loan funds are disbursed only for work actually performed, which protects the lender's collateral and ensures the project advances as planned. Why the other choices are wrong: The option "To replace the title search permanently" is incorrect because inspections are for verifying work completion; title searches are separate procedures to confirm ownership and lien status. The option "To set the borrower's credit score" is wrong because inspections assess physical construction progress, not borrower creditworthiness, which is determined by credit reports and underwriting. The option "To determine the permanent loan's APR" is incorrect because the Annual Percentage Rate (APR) is a finance charge calculation based on loan terms, not on physical inspection results. Exam tip: Remember that construction loan inspections are about verifying completed work for disbursement, not about credit, title, or interest rates.
More Origination Questions
Before the team acts on a servicing handoff check, a closing coordinator must address Asset Verification and Reserves. Which response is most defensible?
An MLO is reviewing procedures for a case where a cost changes after the Closing Disclosure has already been provided. What is the proper handling?
During a post-application update, a quality-control reviewer encounters a Credit Analysis and Evaluation issue. Which response should avoid a shortcut that would misapply the rule?
A construction-to-permanent loan will disburse in 5 draws over 11 months before the permanent phase begins. Which Regulation Z appendix provides a disclosure method for multiple-advance construction transactions?
Before closing, the team discovers that a borrower asks which upfront charge can be collected before intent to proceed. What is the safest compliant answer?
A construction loan agreement allows advances only after documented completion of specified work. A builder requests the next draw, but no completion evidence has been provided. What should occur?
Before releasing the final construction draw, which combination most directly supports project completion and clear collateral?
A construction-to-permanent loan will convert to a substantially higher fully amortizing payment. Which payment is especially important when assessing the borrower's long-term repayment capacity?
A construction-to-permanent note states that conversion requires completion, a certificate of occupancy, and no unresolved liens. Construction is finished, but a mechanic's lien remains. What should happen?
A branch manager asks about a loan file because a processor wants to omit known monthly obligations from underwriting. What should happen?
People Also Study
Federal Mortgage-Related Laws
24% of exam
General Mortgage Knowledge
20% of exam
Ethics, Fraud & Consumer Protection
18% of exam
Uniform State Test Content
11% of exam
Related Study Resources
Previous Question
An MLO is reviewing procedures for a case where a closing is approaching and the borrower has not yet received the Closing Disclosure. What is the proper handling?
Next Question
A quality-control reviewer flags a case because the borrower pays the broker directly and the creditor also offers compensation. What correction is appropriate?