How Construction Loan Draw Schedules Work: A Builder’s Guide
A construction loan draw schedule is a pre-agreed roadmap that releases loan funds in stages as you hit specific, verified building milestones—ensuring your project stays funded without the risk of a lump-sum payout.
For luxury home builders, cash flow is the heartbeat of a project. Unlike traditional loans where you receive the full balance at closing, a construction loan releases capital in increments called "draws." This structure protects both the lender and the builder by ensuring that loan disbursements align directly with the physical progress of the home.
The Anatomy of a Draw Schedule
At the start of your project, you and your lender establish a Schedule of Values (SOV)—an itemized list of every task and its corresponding cost. The draw schedule maps these costs to specific milestones.
A typical single-family ground-up residential build often utilizes 4 to 6 major draws. While every project is unique, a standard sequence generally looks like this:
- Site Work & Foundation: Excavation, utility rough-ins, and concrete work.
- Framing & Dry-In: Erecting the structure and installing the roof and windows.
- Mechanicals (MEP): Rough-ins for plumbing, electrical, and HVAC.
- Interior Finishes: Drywall, cabinetry, flooring, and trim.
- Final Completion: Final inspections, punch lists, and the certificate of occupancy.
Why Lenders Use This Process
Lenders use draw schedules to manage risk. Because the collateral (the home) is being built from the ground up, the lender needs to ensure that the money they provide is actually being converted into property value.
Flatiron Realty Capital, for instance, utilizes this disciplined, milestone-based approach to ensure that projects remain on track. By maintaining a target loan-to-value (LTV) ratio below 70%, we provide the security required to fund luxury builds while keeping the capital flowing as you hit your targets. This "belt and suspenders" underwriting has helped us achieve zero principal losses since our inception in 2018.
How to Keep Your Draws Moving
The biggest mistake builders make is assuming the money will arrive the moment a task is finished. In reality, the "gap" between finishing work and receiving funds is where projects often stall.
- Verify Before You Bill: Never request a draw until the work is 100% complete and ready for inspection. If an inspector arrives and finds the framing incomplete, you will face a rejection and a delay.
- Coordinate Inspections Early: As soon as you hit a milestone, notify your lender to schedule the inspection. Flatiron Realty Capital’s platform, IronLinc, is designed to keep this process efficient, mirroring our commitment to being the fastest private lender for luxury home builders.
- Organize Your Paperwork: Have your invoices, lien waivers, and progress photos ready before the inspector walks the site. Clean, accurate documentation is the fastest way to trigger a funding release.
Frequently Asked Questions
Does the lender pay the full amount of a draw at once?
Not always. Many lenders hold back a small percentage (typically 5–10%) as "retainage." This is held until the final completion of the project to ensure all punch-list items are finished.
Do I pay interest on the full loan amount immediately?
No. A major benefit of construction loans is that you typically pay interest only on the funds that have been drawn to date, not on the entire $1M–$20M commitment.
How long does a draw take to fund?
Timelines vary by lender, but with efficient documentation, you should expect the process to take a few business days after the inspection is complete. At Flatiron, we prioritize speed—our goal is to move as fast as your construction schedule demands.
What happens if I miss a milestone?
If a project falls behind or a milestone is not met, funding for that specific draw is paused. This is a safety mechanism to prevent over-leveraging a project that has stalled, protecting both the builder and the lender.
Need a lender who understands the speed of luxury construction? Whether you are breaking ground on a single custom home or managing a high-end development, you need a partner who moves as fast as you do. Contact our team at Flatiron Realty Capital today to discuss your next project and get a term sheet—often on the same day.
Sources
- Construction Loan Draw Schedule: Milestones, Sample, and How Draws Work
- What Is a Construction Loan Draw Schedule?
- Construction Draw Guide: Steps, Docs, and Best Practices