Ground-Up Construction Financing: How Draw Schedules Work (2026 Guide)

You found the lot. You have the plans. Your general contractor is ready. Now you need the money to actually build. Ground-up construction financing is one of the most powerful tools available to real estate investors and developers in 2026 — but it works nothing like a regular mortgage. If you walk into a lender expecting to receive a single lump-sum check, you are going to be surprised.

This guide breaks down exactly how construction loans work, what draw schedules are, and what lenders are actually looking for before they approve your project. If you are ready to start the conversation now, you can apply at slatefinancial.io/apply in under two minutes.

What Is a Ground-Up Construction Loan?

A ground-up construction loan is a short-term financing product (typically 12 to 24 months) used to fund new construction from bare land to finished structure. Unlike a fix-and-flip loan — which funds the purchase and renovation of an existing property — a ground-up loan finances every phase of building something that does not yet exist.

These loans are almost always interest-only during the construction period. You pay interest only on the funds you have actually drawn, not on the total loan amount. Once the project is complete, you either sell the property, refinance into a permanent loan, or convert to a DSCR rental loan.

What Is a Draw Schedule?

Here is where ground-up construction financing is fundamentally different from every other loan product. The lender does not hand you all the money upfront. Instead, the total loan amount is broken into a series of disbursements called draws, each tied to a specific completed phase of construction.

A typical draw schedule might look like this:

• Draw 1 — Foundation: 15-20% of the loan, released after footings and foundation are poured and inspected
• Draw 2 — Framing: 20-25% released after walls, roof structure, and rough framing are complete
• Draw 3 — Mechanical Rough-In: 15-20% released after HVAC, plumbing, and electrical rough-in passes inspection
• Draw 4 — Drywall and Exterior: 15% released after insulation, drywall, siding, and windows are installed
• Draw 5 — Finishes: 15% released after flooring, cabinets, trim, and fixtures are in
• Draw 6 — Certificate of Occupancy: Final 5-10% released after CO is issued and punch list is complete

Every lender structures these differently. Some use 4 draws. Some use 8. Some release the first draw at closing. Others wait until you hit the first milestone. The schedule is negotiated when you originate the loan, and it is documented in your loan agreement.

How the Draw Request Process Works

To receive each draw, you submit a formal draw request to the lender or loan servicer. This is not a simple email. Most lenders require:

• A signed draw request form listing the work completed
• Lien waivers from your general contractor and all subcontractors for work covered by the draw
• Receipts or invoices for materials
• An inspection by a third-party inspector the lender hires (at your expense)
• Updated photos of the construction progress

The lender will only release funds after the inspector confirms the work is complete and matches what was claimed. Inspection turnaround typically takes 3 to 7 business days. If you are running tight on cash flow between draws, this lag matters enormously. Plan for it in your budget.

What Lenders Actually Look For Before Approving You

Ground-up construction loans are higher risk for lenders than standard purchase loans. That means the underwriting is more rigorous. Here is what most lenders are actually evaluating:

1. Experience Level

First-time builders face the steepest hurdles. Most construction lenders want to see at least one completed new construction project or a track record of successful fix-and-flip deals. If you are brand new, partnering with an experienced developer or hiring a highly credentialed GC can help offset this.

2. Loan-to-Cost (LTC) Ratio

Most ground-up construction lenders will fund 70% to 85% of total project costs, which includes land acquisition, hard construction costs, and soft costs like permits and architectural fees. You are expected to bring 15% to 30% to the table. Your equity contribution is a real underwriting criterion — funding is subject to lender approval and their specific LTC requirements.

3. After-Repair Value (ARV) or After-Construction Value (ACV)

The lender will order a prospective appraisal based on your plans and comparable sales in the area. This appraisal is the ceiling for what they will lend, regardless of your actual costs. If the appraised ACV comes in lower than expected, you may need to bring more cash to closing or redesign your scope.

4. General Contractor Credentials

Your GC is not invisible to the lender. They will review the contractor’s license, insurance, bonding, and often their track record on comparable projects. An unlicensed or underinsured GC can kill a deal at the 11th hour. Vet your GC before you start the loan application.

5. Construction Budget and Timeline

You will need a fully itemized construction budget that accounts for every line item, plus a realistic timeline. Lenders want to see contingency built in — typically 10% to 15% of hard costs. A budget that is too tight signals inexperience and increases the perceived risk of a cost overrun that exhausts the draw schedule before the project is done.

Common Mistakes That Kill Construction Deals

Underestimating soft costs. Permits, architectural drawings, engineering reports, survey costs, and lender fees add up fast. Many first-time builders forget to include these in their budget, which creates a gap the lender notices immediately.

Not vetting the GC’s draw process. Your GC has their own cash flow needs. Before you sign a contract, get clear on when they expect payments and how that aligns with the draw schedule. If your GC requires more upfront than the first draw covers, you need to negotiate that before you close the loan.

Ignoring interest reserve. On a 12-month construction loan, your monthly interest payments are coming whether or not you have drawn any money yet. Many lenders will allow you to roll an interest reserve into the loan, which funds your monthly interest payments from the loan proceeds. Make sure this is part of your structure — do not assume you will cover it from pocket.

Starting construction before closing. This sounds obvious, but it happens. Any work completed before the loan closes creates mechanics lien exposure and can disqualify you from the draw for that phase. Wait until you have signed docs and a funded closing.

Bridge the Gap Between Construction and Permanent Financing

Once your Certificate of Occupancy is issued, the construction loan comes due. Your exit strategy needs to be mapped out before you close on the construction loan, not after. The three most common exit paths are:

• Sell the property: Spec home builders use construction loans as leverage to build and sell. The sale proceeds retire the construction loan and return the equity plus profit.
• DSCR refinance into a rental loan: If the property has rental income potential, a DSCR loan (which qualifies based on the property’s income, not your personal income) is one of the cleanest exits for investors who want to hold.
• Conventional permanent financing: For owner-occupants or buyers who plan to live in the property, a construction-to-perm loan rolls the construction phase directly into a 30-year mortgage at a predetermined rate.

Want to explore what exit strategy fits your project? Start by telling us about the deal at slatefinancial.io/apply.

Why Ground-Up Construction Funding Is Harder to Find in 2026

The construction lending market has tightened significantly since 2023. Rising material costs, labor shortages, and a more cautious lending environment mean that fewer lenders are actively deploying capital for ground-up projects — especially for borrowers without a strong track record.

That is where a broker with active relationships across the capital stack becomes critical. At Slate Financial, we work with a network of private lenders, hard money shops, and institutional construction lenders who are still actively funding ground-up projects in 2026. We match your project profile — your experience level, your market, your budget, your timeline — to the lenders most likely to say yes. Funding is subject to lender approval and varies by project and borrower profile.

Ready to Fund Your Next Build?

If you are planning a ground-up construction project, the time to start the financing conversation is before you finalize your budget — not after. The earlier we can review your project, the more options we can put on the table.

Ready to fund your next deal? Apply in 2 minutes at slatefinancial.io/apply and a member of the Slate Financial team will reach out to discuss your project. Funding is subject to lender approval.

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