Construction & Renovation
How Construction Loan Draws Work
How construction draws are requested, inspected and funded, how the draw schedule is built from the budget, and what causes a draw to be delayed.
Updated 2026-08-21| Applies to: Borrowers and builders managing a construction to permanent or renovation loan.
The short answer
Construction money is released in draws tied to completed work, not in one lump sum at closing. The builder requests a draw, an inspector verifies the work described is actually complete, title is updated to confirm no new liens, and the lender funds that portion of the budget. Interest is charged only on funds already disbursed.
The draw cycle
- 1.Builder completes a defined stage of the budget
- 2.Builder submits a draw request with supporting invoices
- 3.An inspection confirms the work is complete
- 4.Title is updated and lien waivers are collected
- 5.The lender funds the draw to the builder or a joint account
A typical draw schedule
| Stage | Work covered |
|---|---|
| Draw 1 | Site work, excavation and foundation |
| Draw 2 | Framing, roof and exterior sheathing |
| Draw 3 | Rough mechanicals: plumbing, electrical, HVAC |
| Draw 4 | Drywall, interior trim and cabinets |
| Draw 5 | Flooring, fixtures, paint and punch list |
| Final | Certificate of occupancy and conversion to the permanent loan |
Stage counts and percentages vary by lender and by the project budget. The point is consistent: money follows verified work.
Why draws get delayed
- The requested stage is not fully complete at inspection
- Missing lien waivers from subcontractors or suppliers
- Invoices that do not match the approved budget line items
- Change orders that were never submitted for approval
- A title update showing a new mechanic's lien
Retainage
Many programs hold back a percentage of each draw until the project is complete. That holdback protects everyone from a project that stalls at ninety percent, and the builder should price it into their cash flow plan.
General education, not a commitment to lend. Construction, land and renovation program terms, loan to value limits, draw procedures and builder requirements vary by lender, property and current guidelines, and they change over time. Manny Oloyede | Mortgage Broker | NMLS 1824463 | Ultimate Mortgage Brokers LLC. Equal Housing Opportunity.
Common mistakes to avoid
- Paying a subcontractor directly outside the draw process
- Approving work that departs from the plans without a written change order
- Assuming a draw funds the same day it is requested
Related loan programs
Frequently Asked Questions
People also ask
Do I make payments during construction?
On most one time close programs you pay interest only on the funds drawn to date, then the full payment begins after conversion.
Read: One Time Close Construction LoansCan I remove my escrow account?
Some loans allow escrow waivers, often with sufficient equity and a fee, and government backed loans generally require escrow. It depends on the loan.
Read: Why My Mortgage Payment ChangedDo I close twice?
Not with a one time close construction to permanent loan. You close once, and the loan converts at completion. A two time close structure has a separate construction loan and a separate permanent refinance, with two sets of closing costs.
Read: Construction to Permanent Loans ExplainedWhich is cheaper overall?
Usually the one time close, because you pay closing costs and title work once instead of twice. The exact difference depends on loan size and the fees on each structure.
Read: One Time Close vs Two Time Close Construction LoansHow much should my contingency be?
Many builders and lenders plan a contingency in the range of five to ten percent of hard costs. Larger custom projects and older lots with unknown site conditions justify the higher end.
Read: How to Finance a Custom Home BuildCan I use land equity as my down payment?
Often yes. Land owned free and clear commonly counts toward equity in the construction project, subject to program rules and the appraised lot value.
Read: Land Loans vs Construction LoansTerms used in this guide
- Draw Schedule
- The stage by stage plan for releasing construction funds as work is completed and inspected, built from the project's line item budget.
- Lien
- A legal claim against a property securing a debt. Liens generally must be paid or released before clear title can transfer.
- Title Search
- A review of public records to confirm ownership and identify liens, easements or judgments that must be resolved before closing.
Written by
Manny Oloyede, Mortgage Broker
NMLS #1824463 | Ultimate Mortgage Brokers LLC NMLS #2619461 | Licensed in OH | KY | NC | PA | SC | TN | TX
I have worked in mortgage lending since 2018 out of the Akron / Cuyahoga Falls Branch, helping buyers, homeowners and investors across Northeast Ohio and every state where I am licensed. These guides reflect the questions I answer most often, written the way I would explain them on a call.
Keep reading
Construction to Permanent Loans Explained
How a construction to permanent loan works: the build phase, interest only draw payments, inspections and the conversion to a standard mortgage at completion.
Construction & RenovationCost Overruns and Change Orders on a Construction Loan
How change orders are approved on a construction loan, who pays for overages, how contingency reserves work and what to do when the budget runs past the loan.
Construction & RenovationConstruction Loan Timeline and What Delays It
What happens between application and certificate of occupancy on a construction loan, and the delays that most often push a build past its planned completion.
Problems & FixesWhy My Mortgage Payment Changed
How escrow analysis works, why payments change on a fixed rate loan, and what to do when a shortage shows up in Northeast Ohio tax cycles.
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