<P> The final major guideline is the maximum loan amount the lender will allow relative to the completed value of the project . This rule is designed to help ensure that, after the project is completed, if the borrower stops paying the payment, the lender can sell the property and hopefully recoup all the funds loaned . </P> <P> Construction Loans are often extended for developers who are seeking to build something but sell it immediately after building it . In this case, a special appraisal is ordered to attempt to predict the future sales value of the project . The first guideline above, affordability, is usually not used because the owner would immediately attempt to sell the property . However, it is used sometimes for example when a developer is building condominia, the lender might evaluate whether if the project was changed from condominia to apartments if the rents received would more than repay the loan each month . Cash injection requirements are often higher due to the added risk (the immediate need to sell). The loan to value requirements however are often the most impactful . This is because the value is often calculated differently then how people might assume . For example, if a developer is building a 20 unit condominium project, a lender might not just loan a certain percentage of the predicted future total value of the condominia, but only a certain percentage of the value of the condominium project if, because of an emergency or unforeseen circumstance, the entire building had to be sold at once to one buyer (known as a bulk sale). Since the realizable sales price in this case might be much lower, the maximum loan many lenders would extend would be much lower . </P> <P> Funds are taken from the loan through a process referred to as a "draw". A draw is the method by which funds are taken from the construction budget to pay material suppliers and contractors . Each lender has different requirements for processing a draw . For example, some allow the borrower to request draws online, while others require paperwork and periodic inspections . This process helps ensure that the loan proceeds are actually used for the construction and that the construction process is moving smoothly . The borrower is only charged interest on the amount borrowed at any one point . </P> <P> Instead of paying each month during construction, almost all construction loans in the United States have extra funds borrowed right away and stored in a locked account known as an "interest reserve". Each month the monthly payments are taken from the account so that the borrower does not have to start paying out of pocket until the project is completed . </P>

When are funds dispersed on a construction loan