New Construction Loan Draw Schedule: How It Works for Investors
- May 5
- 4 min read
A new construction loan doesn't fund all at once.
Money is released in stages — called draws — as each phase of construction is completed and verified.
Understanding the draw schedule before you break ground can prevent costly surprises.
Quick Answer: A construction loan draw schedule releases funds in 4–6 phases tied to completed milestones: foundation, framing, rough mechanical/electrical/plumbing, insulation/drywall, interior finishes, and final completion/Certificate of Occupancy. Each draw requires a third-party inspection before funds are released. You only pay interest on the outstanding drawn balance — not the full loan commitment.
What Is a Construction Draw Schedule?
Instead of receiving the full loan at closing, funds are disbursed in tranches as each construction phase is completed and inspected.
This structure protects both parties: the lender limits exposure to incomplete work; the borrower pays interest only on drawn funds.
Typical Construction Draw Phases
Most residential construction loans follow a schedule similar to this:
1️⃣ Foundation — Site clearing, permits, foundation poured and inspected (15–20% of budget)
2️⃣ Framing / Roof — Framing, roof sheathing complete (20–25% of budget)
3️⃣ Rough MEP — Rough plumbing, electrical, HVAC installed (15–20% of budget)
4️⃣ Insulation / Drywall — Insulation, drywall, windows and doors (10–15% of budget)
5️⃣ Interior Finishes — Flooring, cabinets, fixtures, paint (15–20% of budget)
6️⃣ Final Completion / CO — Punch list complete, Certificate of Occupancy issued (10–15% of budget)
Some lenders use 4 draws; others use up to 8 for complex projects. Your specific schedule is agreed at closing.
How the Draw Request Process Works
1️⃣ Submit draw request — you or your GC document completed work and costs
2️⃣ Lender orders inspection — third-party inspector visits the site
3️⃣ Inspector submits report — completion percentage verified against draw schedule
4️⃣ Lender approves and funds — typically within 3–7 business days of approved inspection
Experienced builders submit draw requests as each phase nears completion — not after — to minimize waiting time.
Interest During the Construction Period
Most construction loans are interest-only during the build, with interest charged only on the outstanding drawn balance.
Example on a $400,000 construction loan at 11%:
After Draw 1 ($80,000 drawn): ~$733/month interest
After Draw 3 ($240,000 drawn): ~$2,200/month interest
Full commitment drawn: ~$3,667/month interest
This keeps carrying costs manageable during the construction timeline.
Planning a New Construction Project?
Review construction loan structures and draw schedules for residential investment builds.
What Happens After Construction Is Complete?
Once the Certificate of Occupancy is issued and the final draw is released, most investors do one of two things:
Refinance into a DSCR rental loan (buy-and-hold investors)
Sell the newly constructed property (new-build flip)
The construction loan is repaid from the refinance proceeds or the sale. If you need short-term capital while arranging permanent financing, a bridge loan can fill the gap.
Common Draw Schedule Mistakes to Avoid
Paying contractors the full contract amount before draws release
Underestimating contingency (budget 10–15% over base estimate)
Using a contractor unfamiliar with lender-managed draws
Ignoring permit and inspection timelines in your schedule
Assuming the CO will be issued before your loan matures
Bottom Line
Understanding your draw schedule is critical to managing cash flow on a construction project.
Funds released in 4–6 phases tied to completed milestones
Each draw requires an inspection before funding
Interest only on drawn balance — not the full loan
Final draw released after Certificate of Occupancy
Plan your contractor payments around draw timing
Frequently Asked Questions
How many draws does a new construction loan typically have?
Most residential new construction loans have between 4 and 6 draws, with each tied to a specific construction milestone. Some programs allow up to 8 draws for complex projects. The number and structure of draws is agreed upon at closing.
How long does it take to receive a construction draw?
Most lenders process draws within 3–7 business days of an approved inspection report. The inspection is typically ordered within 1–3 days of a draw request. Total turnaround from request to funding is usually 7–14 days.
Can I draw funds for materials before they are installed?
Generally no. Most construction lenders only release draws for completed work — not stored materials. Some lenders allow partial draws for on-site stored materials with documentation, but this is not standard. Plan your cash flow to bridge the gap.
What happens if construction costs exceed the loan amount?
Cost overruns above the loan commitment must be covered out of pocket. Lenders will not release more than the committed amount. This is why a 10–15% contingency budget is essential — not optional.
Do I need a Certificate of Occupancy for the final draw?
Yes. Virtually all construction lenders require a CO before releasing the final draw. This is official proof the property is complete and legally habitable. Plan your build timeline to ensure you have the CO in hand before the loan matures.
Ready to Finance a New Construction Project?
We can walk you through our new construction loan structures for your residential investment builds.