Ground-Up Construction Financing in 2026: How Draw Schedules Work (And Why They Matter)

You have the land. You have the blueprints. You have a GC ready to break ground. What you need now is a lender who understands construction financing and a clear picture of how your money flows from loan close to certificate of occupancy. That money flow has a name: the draw schedule. It is the single most important document in your construction loan, and most first-time builders do not understand it until they run out of cash at a critical phase.

This guide breaks down how ground-up construction loans work, how draw schedules are structured, and how investors and developers are using creative financing in 2026 to get projects across the finish line. If you are ready to start your application now, visit slatefinancial.io/apply to get matched with a construction lender in minutes. Funding is subject to lender approval.

What Is a Ground-Up Construction Loan?

A ground-up construction loan is a short-term financing product designed to fund the development of a new property from a bare lot through to a completed structure. Unlike a purchase loan where funds are disbursed in full at closing, construction loans release capital in stages tied to verified milestones in the build process.

These loans typically carry terms of 12 to 24 months and are interest-only during the construction period, meaning you only pay interest on funds that have been drawn down, not on the full loan amount. Once construction is complete, most borrowers either sell the asset, refinance into permanent financing, or convert the loan via a construction-to-perm product.

Common use cases include:

• Spec home builds on purchased lots
• Tear-down and rebuild projects in infill markets
• Custom builds for end-user clients
• Small multifamily development (2-8 units)
• Commercial shell construction

How the Draw Schedule Works

The draw schedule is a phased disbursement plan that specifies how much of your loan is released at each construction milestone. Lenders do not hand over the full loan amount on day one. Instead, they verify that each phase of work is complete before releasing the next tranche of funds.

A typical residential ground-up draw schedule looks like this:

Draw 1 — Foundation and Footings (10-15% of loan)

Released after excavation is complete and the foundation is poured and cured. Most lenders require a foundation inspection before disbursing this draw. Some lenders include site prep and permit costs in this phase.

Draw 2 — Framing and Rough Structure (20-25% of loan)

Released once the frame is up, sheathing is installed, and the roof is dried in. This is one of the largest draws because material costs are concentrated here. A framing inspection or lender site visit is standard.

Draw 3 — Mechanical, Electrical, and Plumbing Rough-In (15-20% of loan)

Covers the rough installation of HVAC, electrical wiring, and plumbing before drywall goes up. Lenders often require rough-in inspections and passed building department sign-offs at this stage.

Draw 4 — Insulation, Drywall, and Exterior (15-20% of loan)

Once the walls are closed in and exterior finishes like siding, stucco, or brick are underway, this draw releases. Interior rough paint may also be included here depending on your lender’s schedule.

Draw 5 — Interior Finishes and Fixtures (15-20% of loan)

Covers cabinets, flooring, trim, fixtures, appliances, and finish mechanical work. At this stage the property is taking its final shape and most of the high-visibility work is happening.

Draw 6 — Final Completion and Certificate of Occupancy (10-15% of loan)

The final draw releases after the building department issues a certificate of occupancy and all punch-list items are resolved. Some lenders hold a small retainage (3-5%) until all final liens are cleared.

What Lenders Look at Before Releasing a Draw

The draw request process is where many builders lose time and momentum. Understanding what your lender requires at each draw avoids costly delays that can cascade across the entire build schedule.

Inspection or draw certification: Most construction lenders send a third-party inspector or use an in-house construction manager to verify completion of each phase. Some lenders accept owner-certified draw requests with supporting photos for smaller projects or established borrowers.

Lien waivers: Before releasing any draw, your lender will typically require conditional or unconditional lien waivers from your GC and major subcontractors. These protect the lender’s collateral position and are non-negotiable.

Title updates: Many lenders require an updated title search at each draw to confirm no mechanic’s liens have been filed against the property since the last disbursement.

Budget-to-actual tracking: If your costs are running over budget in any category, the lender needs to know. Cost overruns that exceed the contingency reserve can trigger a loan modification discussion.

The Contingency Reserve: Your Financial Buffer

Every experienced construction lender requires a contingency reserve built into the loan budget, typically 5% to 15% of total hard costs depending on the complexity of the project. This reserve covers cost overruns, unexpected site conditions, material price changes, and scope additions.

First-time builders often underestimate contingency needs. In 2026, with ongoing volatility in lumber pricing and skilled labor shortages in most major metros, a 10% contingency on new construction is a reasonable baseline. Your lender may require this reserve to be held in escrow and released only for documented overruns.

Construction Loan vs Construction-to-Perm Loan

One of the first decisions a builder makes is whether to use a standalone construction loan or a construction-to-perm (C2P) product. Each has trade-offs.

Standalone construction loan: Short-term, interest-only during build, then refinanced at completion. More flexibility to shop rates at the permanent financing stage. Two separate closings mean two sets of closing costs.

Construction-to-perm loan: Converts automatically from construction to permanent financing at project completion. One closing saves time and money. Rate on the permanent phase is typically locked at origination, which can be an advantage or disadvantage depending on rate movement during the build.

For investors building spec homes they plan to sell, a standalone construction loan often makes more sense since there is no permanent financing needed. For owner-occupants or investors building long-term rental assets, a C2P can simplify the process and reduce total transaction costs.

How to Get Approved for Ground-Up Construction Financing

Lender requirements for construction loans are more involved than purchase loans because the collateral does not yet exist. Here is what most lenders evaluate:

Borrower experience: First-time builders face more scrutiny. Lenders want to see that you have managed a build before, or that your GC has a proven track record. Some lenders require a minimum of one completed project.

Liquidity reserves: Construction loans are riskier for lenders because the asset value builds over time. Most lenders want to see 6 to 12 months of interest payments in reserve beyond your down payment.

Detailed construction budget: A line-item budget broken down by trade with competitive bids is the foundation of your loan package. Vague estimates slow approvals and can result in lower loan amounts.

Plans and permits: Approved building permits and stamped architectural plans demonstrate that your project has cleared regulatory hurdles. Many lenders will not commit to funding until permits are in hand.

Down payment or equity: Most construction lenders require a 20-30% down payment on the land and total project cost. If you own the land free and clear, that equity often counts toward your down payment requirement.

The fastest way to find a lender who fits your specific project is to apply directly. Start your application in two minutes at slatefinancial.io/apply and get matched with construction lenders who fund in your market. Funding is subject to lender approval.

Common Draw Schedule Mistakes That Sink Projects

Even experienced builders make mistakes that create cash flow problems mid-project. Here are the ones we see most often:

Front-loading material purchases: Paying suppliers upfront to lock in material pricing before draws are released creates a gap between your out-of-pocket cash and loan reimbursement. Plan your purchase timing around draw release cycles.

Neglecting soft costs in the budget: Permits, architectural fees, engineering reports, and construction management fees need to be in the budget from day one. Lenders who discover uncovered soft costs mid-project become difficult to work with.

Ignoring the inspection timeline: Third-party inspections take time. If your lender’s inspection turnaround is 5-7 business days, that gap needs to be in your GC’s schedule. Missing this is the most common cause of draw delays.

Skipping the lien waiver process: Allowing subs to go unpaid while waiting for a draw is the fastest way to get a mechanic’s lien filed. Once a lien lands on title, the next draw may freeze entirely until it is resolved.

Ready to Get Your Construction Project Funded?

Ground-up construction financing is available for qualified borrowers in 2026, even in a tighter credit environment. The key is presenting a clean, well-documented loan package and working with lenders who specialize in construction rather than trying to force a project into a conventional product.

Slate Financial works with a network of construction lenders who fund spec homes, tear-down rebuilds, and small multifamily projects across the country. If you have land, plans, and a qualified GC, you are closer to a funded project than you might think.

Ready to fund your next deal? Apply in 2 minutes at slatefinancial.io/apply and get matched with lenders who fund construction in your market. Funding is subject to lender approval.

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