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

Building from the ground up is one of the most capital-intensive projects a real estate investor can take on. Unlike a fix-and-flip where you buy an existing structure and renovate, ground-up construction means creating a property from a bare lot. That requires a different type of financing — and one critical concept you must understand before you close: the draw schedule.

If you are a builder, developer, or spec-home investor looking for financing in 2026, this guide breaks down exactly how construction loan draws work, what lenders look for, and how to get funded faster. Ready to start? Apply in 2 minutes at slatefinancial.io/apply and our team will match you with the right construction lender.

What Is a Ground-Up Construction Loan?

A ground-up construction loan is short-term financing used to fund the building of a new structure from scratch. This includes single-family spec homes, small multifamily (2-4 units), and larger commercial builds. Terms typically run 12 to 24 months with an option to convert to a permanent loan upon certificate of occupancy.

These loans are NOT disbursed all at once. That is the core difference from a traditional mortgage or a hard money fix-and-flip loan. Instead, funds are released in stages — called draws — as construction milestones are completed and inspected.

What Is a Draw Schedule?

A draw schedule is a pre-agreed timeline that maps specific construction milestones to specific funding releases. The lender holds your full loan amount in reserve, and you pull money down in tranches as work is completed and verified.

A typical 5-draw schedule for a spec home might look like this:

• Draw 1 (Foundation): 10-20% of loan released after footings, foundation, and slab are poured and inspected.
• Draw 2 (Framing): 20-25% released after exterior framing, roof sheathing, and rough openings are complete.
• Draw 3 (Rough-In): 20% released after rough plumbing, electrical, and HVAC pass inspection.
• Draw 4 (Drywall / Close-in): 20% released after insulation, drywall hang and tape, and exterior weatherproofing.
• Draw 5 (Completion): Final 15-20% released after certificate of occupancy, final inspections, and punch-list sign-off.

Percentages vary by lender, loan size, and project complexity. More complex projects may have 7 to 10 draws. The key is that no draw funds before the prior milestone is verified — usually via an inspection or appraisal update.

How the Draw Request Process Works

When your crew finishes a milestone, you submit a draw request to the lender. Here is the typical process:

1. Submit the draw request form with a breakdown of work completed and invoices from contractors.
2. Lender orders an inspection — a third-party inspector visits the site and confirms the work matches what was claimed.
3. Inspection is approved (or lender flags incomplete items).
4. Funds are wired — typically 3 to 7 business days after inspection approval.

This process repeats for every draw. The fastest borrowers have their draw requests pre-organized with line-item contractor receipts before they even call the inspector. Sloppy documentation is the number one reason draws get delayed and projects go over budget.

What Lenders Look for in a Ground-Up Construction Deal

Getting approved for ground-up financing is more rigorous than fix-and-flip because lenders are betting on a project that does not yet exist. Here is what underwriters evaluate in 2026:

1. After-Construction Value (ACV)

Your lender will order an appraisal based on the plans and specs. Loan amounts are typically capped at 65-75% of the projected ACV. If your projected ACV is $600,000, expect a max loan in the $390,000 to $450,000 range.

2. Loan-to-Cost (LTC)

Many lenders also cap at 80-90% of total project cost (land + hard costs + soft costs). You will need equity in the deal — either through land you own free and clear, a cash down payment, or a documented cash contribution to construction costs.

3. Builder Experience

This is the factor that eliminates the most first-time developers. Lenders want to see completed projects — permits pulled, homes sold or stabilized. If you are building your first spec home, partnering with an experienced general contractor with a verifiable track record dramatically improves your approval odds.

4. Licensed and Insured GC

Every lender requires a licensed, bonded, and insured general contractor with a fixed-price contract. No lender will fund a project where the borrower is acting as their own GC without significant prior experience.

5. Detailed Project Budget

Submit a line-item budget covering: land (if being purchased), site prep, foundation, framing, rough-in trades, insulation, drywall, finishes, landscaping, contingency (typically 10-15%), and soft costs (permits, architecture, engineering, financing costs). Missing line items are a red flag.

6. Construction Timeline

Your loan term needs to cover the full build plus a buffer for delays. Lenders want to see a realistic Gantt-style timeline from your GC. Overly optimistic timelines hurt your case — lenders have seen too many projects run 4 to 6 months over schedule.

Interest Reserves and Carrying Costs

One thing many first-time builders overlook: you pay interest on drawn funds only, not on the full loan commitment. But as draws accumulate, your monthly interest bill grows. Most lenders allow you to roll an interest reserve into the loan — a pre-funded pool that covers your monthly interest payments during construction so you are not paying out of pocket while the project is underway.

Factor this into your budget. On a $400,000 loan at 10.5% interest running 14 months, your total interest carry could run $48,000 or more.

Bridge-to-Perm vs. Stand-Alone Construction

You have two structural choices for ground-up financing:

Stand-alone construction loan: A short-term loan that funds the build. When the project is complete, you refinance into a permanent mortgage (DSCR rental loan, conventional, or sell the property). You close twice — once for the construction loan, once for the take-out.

Construction-to-perm (one-time close): One loan, two phases. The construction phase converts automatically to a 30-year permanent loan at CO. You only close once. The advantage is rate lock and simplicity. The trade-off is that not all lenders offer this product and qualifying criteria are often stricter.

If you are a spec builder who intends to sell at CO, a stand-alone loan almost always makes more sense. If you are building a long-term rental, construction-to-perm may save you significant closing costs. Submit your scenario at slatefinancial.io/apply and our team will model both options for you.

Common Mistakes That Stall Construction Draws

• Sloppy contractor invoices — Lenders need itemized invoices tied to the approved budget lines. A single “miscellaneous labor” line for $18,000 will get kicked back.
• Work ahead of draws — If your GC builds beyond the current draw milestone, lenders may refuse to advance funds until the phase matches what was inspected.
• Scope creep without a change order — Any material change to the approved plans requires a formal change order approved by the lender before work proceeds. Building first and asking permission later creates funding gaps.
• Missing permits or failed inspections — A failed municipal inspection can freeze a draw indefinitely. Permit status should be monitored weekly.

What Rates and Terms Look Like in 2026

Ground-up construction loans are not priced like 30-year mortgages. In 2026, typical market terms for residential spec construction include:

• Rates: 9.5% to 12.5% (floating or fixed depending on the lender)
• Terms: 12 to 24 months
• LTC: Up to 85-90% for experienced builders
• LTV (based on ACV): 65-75%
• Points: 1.5 to 3 origination points
• Down payment: 10-20% of total project cost, or land equity in lieu

These are market ranges, not guarantees. Your actual rate and terms will depend on your borrower profile, builder experience, project location, and lender relationship. Funding is subject to lender approval and full underwriting review.

How to Get Started

Ground-up construction financing rewards borrowers who come prepared. Before you apply, have these documents ready:

1. Property address or parcel ID (or purchase contract if land is not yet owned)
2. Architectural plans and permits (or permit-ready plans)
3. GC bid / fixed-price construction contract
4. Detailed project budget with contingency
5. Build timeline
6. Your entity docs (LLC operating agreement, EIN)
7. 12 months of bank statements or proof of liquidity

The faster you can deliver this package, the faster your loan closes — and in construction, every week of delay is a week of carrying costs with no revenue.

Slate Financial works with builders and developers across the country to source the right construction financing for every stage of your project. Whether you are building your first spec home in Florida or your fifteenth subdivision lot in Texas, we can match your deal to the right lender in our network.

Ready to fund your next build? Apply in 2 minutes at slatefinancial.io/apply and our team will reach out within one business day. Funding subject to lender approval.

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