Ground-Up Construction Loans: How Draw Schedules Actually Work

Building from the ground up is one of the most powerful strategies in real estate investing. Whether you are developing a spec home, a multi-family project, or a commercial building, ground-up construction financing is the engine that makes it possible. But there is one concept that trips up even experienced developers: the draw schedule.

Understanding how draws work — and how to prepare for them — is the difference between a project that flows smoothly and one that stalls out waiting on funds. If you are planning a ground-up build and need financing, start your application at slatefinancial.io/apply and our team will match you with lenders who specialize in construction loans.

What Is a Construction Draw Schedule?

A construction draw schedule is a predetermined plan that outlines when and how loan funds are released to the borrower (or directly to the contractor) during the build process. Unlike a traditional mortgage where you receive all the funds at closing, a construction loan releases money in stages tied to verified progress milestones.

Think of it as a milestone-based payment system. The lender is not going to hand over the full loan amount on day one — they want to confirm that work is actually being completed before releasing the next batch of funds. This protects both the lender and, frankly, the borrower from a contractor who disappears mid-project with money in hand.

Draw schedules are typically negotiated before the loan closes. The number of draws varies by lender and project size, but most ground-up residential builds use between four and six draws. Commercial projects may have eight or more.

Typical Draw Milestones for a Residential Build

While every lender structures draws slightly differently, here is a common framework for a ground-up single-family or small multi-family project:

Draw 1 — Site Preparation and Foundation

This draw is released after site clearing, grading, and foundation work is complete and inspected. Lenders typically require a foundation inspection from a licensed inspector before releasing these funds. This draw often covers 15 to 25 percent of the total construction budget.

Draw 2 — Framing

Once the frame is up (walls, roof structure, rough openings), the second draw is released. A framing inspection from the municipality or a lender-approved inspector is typically required. This stage usually accounts for another 20 to 25 percent of the budget.

Draw 3 — Rough Mechanicals (Plumbing, Electrical, HVAC)

After rough plumbing, electrical wiring, and HVAC ductwork are run but before walls are closed in, the third draw fires. Rough-in inspections from local building departments are often required here. Budget for 15 to 20 percent of total costs at this stage.

Draw 4 — Drywall, Exterior, and Insulation

With insulation installed, drywall hung, and the exterior sheathing or siding in place, the fourth draw is released. This is where the project starts to look like a real building. This draw typically covers 15 to 20 percent of the budget.

Draw 5 — Substantial Completion and Final

The final draw covers finish work: flooring, cabinets, trim, fixtures, painting, and landscaping. A certificate of occupancy (CO) from the local building department is usually required before the lender releases the final draw. This final tranche covers 15 to 25 percent of the build cost.

Who Approves Each Draw?

Before releasing each draw, most lenders require an inspection by an independent third-party inspector (sometimes called a draw inspector or construction monitor). This is not the same as a municipal building inspection — the lender is paying someone specifically to verify that the work you claimed is done has actually been completed.

The process typically works like this:

• Borrower or contractor submits a draw request with supporting documentation (invoices, lien waivers, photos).
• Lender dispatches a draw inspector to the site.
• Inspector verifies percentage of completion and submits a report.
• Lender releases funds — either to the borrower or directly to the general contractor, depending on the loan structure.

Turnaround time from draw request to fund release typically runs three to seven business days, though it varies by lender. Factor this lag into your project cash flow plan.

How to Prepare for a Draw Inspection

Being prepared for a draw inspection speeds up the process and keeps your project on schedule. Here are the steps experienced developers follow:

• Keep lien waivers current. Every subcontractor and supplier who has been paid should provide a conditional or unconditional lien waiver. Missing waivers are the single most common draw delay.
• Document everything with photos and dates. A photo log of each stage of construction gives your inspector confidence and provides backup if there are any disputes.
• Pass municipal inspections first. If a stage requires a city or county inspection, schedule it and get the sign-off before calling your lender’s draw inspector. Trying to request a draw before you have a municipal sign-off just adds a round trip.
• Submit draw requests proactively. Do not wait until your GC needs the money tomorrow. Submit the draw request as soon as the milestone is reached.

Common Mistakes That Slow Down Draw Releases

Even experienced developers run into draw delays. The most common causes:

• Incomplete lien waivers — one missing waiver can hold up an entire draw release.
• Work ordered outside the approved scope — if your contractor does work that was not in the approved plans, the inspector may flag it and the lender may withhold payment until you get a change order approved.
• Budget overruns at early stages — if you spend more on framing than budgeted, the lender may reduce later draws to stay within the original loan amount. Keep a contingency reserve.
• Stale title updates — many lenders require a title update (bring-down endorsement) before each draw to confirm no new liens have been filed. If a sub filed a mechanic’s lien, you need to resolve it before funds are released.

What Lenders Look for Before Approving a Ground-Up Construction Loan

Construction lenders evaluate deals differently than traditional mortgage lenders. Here is what they are focused on:

• Experience: Have you completed a ground-up project before? First-time builders face stricter terms or higher rates. A track record of completed projects is the single biggest approval driver.
• Detailed budget and plans: Lenders want a line-item budget, a draw schedule, and approved architectural plans. Vague estimates are a red flag.
• Contractor qualifications: Your general contractor’s license, insurance, and experience history matter to the lender. Using an unlicensed contractor may disqualify the deal.
• After-Repair Value (ARV): The lender is funding the future value of the completed project. An independent appraisal estimating the ARV is almost always required. Most lenders will finance up to 65 to 75 percent of ARV.
• Liquidity reserves: Construction projects run over budget. Lenders want to see that you have cash reserves to cover overruns and carrying costs.

Ready to find out how much you can borrow for your ground-up project? Apply in two minutes at slatefinancial.io/apply and we will connect you with lenders who actively fund ground-up construction — no fees to apply, funding subject to lender approval.

Construction-to-Perm vs Stand-Alone Construction Loan

There are two main structures for ground-up construction financing:

Stand-alone construction loan: A short-term loan (typically 12 to 18 months) that covers only the build phase. When the project is complete, you pay off the construction loan with either a sale or a separate permanent mortgage (conventional, DSCR, commercial, etc.). This is the most common structure for spec builders and investors who plan to sell or refinance at completion.

Construction-to-perm loan: A single loan that starts as a construction loan and automatically converts to a long-term mortgage at completion. This saves you one closing and is more common for owner-occupants or buy-and-hold investors who plan to keep the property. The trade-off is that the permanent rate is locked in at origination, which may not be optimal if rates move during the build.

For most real estate investors doing spec builds or ground-up development for resale, a stand-alone construction loan gives you more flexibility. For a primary residence or a rental property you plan to hold long term, construction-to-perm often makes more economic sense.

Working With a Broker vs Going Direct

Construction loans are not a commodity product. Terms, LTV limits, draw schedules, and borrower requirements vary significantly from lender to lender. A lender who does great work on fix-and-flip rehabs may not have a ground-up program at all.

Working with a broker who has access to a network of private lenders, hard money lenders, and portfolio banks dramatically increases your chance of finding the right fit for your specific project — especially if your credit is less than perfect or your project is in a secondary market.

Slate Financial works with a network of lenders who fund ground-up construction, new development, and construction-to-perm projects. We do the matching work so you do not have to cold-call 20 lenders to find the two who will actually do your deal.

Ready to fund your next project? Apply in 2 minutes at slatefinancial.io/apply. Tell us about your build, your timeline, and your experience, and we will get to work on finding the right construction lender for you. Funding subject to lender approval.

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