How does a construction loan draw schedule work?
A construction draw schedule releases loan funds in 3 to 6 stages, usually monthly or at milestones such as foundation, framing, and drywall, after an inspector verifies the work and the lender reviews invoices and lien releases. Each draw typically funds within 5 to 10 business days, and interest accrues only on the funds released so far.
A typical milestone schedule
| Draw | Milestone | Share of hard costs (typical) |
|---|---|---|
| 1 | Site work, foundation | 10 to 15 percent |
| 2 | Framing, roof, exterior sheathing | 20 to 25 percent |
| 3 | Rough plumbing, electrical, HVAC, windows | 15 to 20 percent |
| 4 | Insulation, drywall, exterior finish | 15 to 20 percent |
| 5 | Interior finishes, cabinets, flooring | 15 to 20 percent |
| 6 | Final: fixtures, punch list, certificate of occupancy | 10 percent retained until completion |
Many lenders use a monthly schedule instead, funding whatever percentage of each budget line was completed that month. Ranges vary by lender and project.
The paperwork for each draw
- Draw request on the lender's form, by budget line.
- Contractor's invoice or pay application.
- Conditional lien releases from the contractor and subcontractors for this draw; unconditional releases for the previous one.
- Photos or a video walkthrough.
- Inspection by the lender's inspector, physical or virtual.
- Title update on some loans to confirm no new liens.
Retainage
Most lenders hold back 5 to 10 percent of each draw until completion, matching the retainage in the contractor's contract. The final draw releases it after the certificate of occupancy and final lien releases.
Timing and cash flow
Draws reimburse completed work, so you or the contractor fund each phase first. On a $1 million hard-cost budget with monthly draws, expect $80,000 to $120,000 of work in progress before each reimbursement. Contractors who are not paid on time slow down, so align the contractor's payment terms with the draw cycle and keep working capital for one full cycle.
Where draws stall
- Work billed ahead of completion. Inspectors fund what is in place.
- Missing lien releases from subcontractors.
- Budget lines overrun with no approved reallocation.
- Change orders not approved before the work.
- Inspector scheduling in busy markets; ask if virtual inspections are allowed.
Stored materials
Some lenders fund materials delivered to the site and properly stored and insured, such as trusses, windows, and HVAC equipment. Others fund only installed work. Ask before ordering long-lead items.
How CommFi handles it
Our lending desk reviews the draw schedule against the contractor's payment terms before closing so the cash flow works. It funds direct when it fits, and when a lender with faster draws or stored-materials funding is the better match, the desk searches a database of 7,000+ lenders and the ones that fit compete for the file. Zero upfront fees.
Related reading
Related questions
- How often can I draw on a construction loan?
- Monthly, or at milestones, depending on the lender. Each draw funds five to ten business days after the request and inspection.
- What is retainage?
- A 5 to 10 percent holdback from each draw released at completion, after the certificate of occupancy and final lien releases.
- Do draws pay for materials or only installed work?
- Most lenders fund installed work. Some fund stored materials on site when properly insured. Ask before ordering long-lead items.
- Who inspects the work before a draw?
- The lender's inspector, in person or by video walkthrough, confirms the percentage of each budget line complete.
- What causes construction draws to be delayed?
- Billing ahead of completion, missing lien releases, unapproved change orders, and budget lines that have overrun.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.