Construction loan funds are not handed out in one lump sum at closing. They are held by the lender and released in draws as your builder completes milestones, passes inspections, and submits documentation. Materials and labor are paid according to the approved draw schedule — with contingency held back until the home is finished.
At closing, your total construction budget is approved and escrowed — but only a portion may be available for early draws based on your schedule. As each phase completes (foundation, framing, mechanicals, drywall, finishes), your builder requests a draw with invoices and lien waivers where required.
A third-party inspector or the lender’s construction administrator verifies that the work matches the budget line items and building plans. Once approved, the lender releases funds — typically via joint check to builder and borrower, or directly to the builder per program rules.
Ryan and Steve review your draw schedule at pre-approval so you know how cash flow will work before the first shovel hits dirt.
Draws protect you, your builder, and the lender by tying dollars to verified progress.
Invoices, progress photos, subcontractor lien waivers, and a draw request form listing completed line items against the approved budget.
An independent inspector or construction administrator confirms work is complete and matches plans before funds release.
Some draws cover material deposits or delivered goods; others pay installed labor. Your schedule defines what is eligible at each stage.
A contingency reserve and sometimes a completion holdback stay in escrow until punch-list items are done and the certificate of occupancy is issued.
Exact percentages vary by lender and builder contract — this is a common framework.
Stage 1
Clearing, footings, and foundation pour — often the first major draw after initial permits and site prep.
Stage 2
Structural shell, windows, doors, and dried-in roof trigger the next release of construction funds.
Stage 3
HVAC, plumbing, electrical rough-in, insulation, and drywall completion unlock mid-build draws.
Stage 4
Cabinets, flooring, fixtures, and final inspection lead to the last draw and permanent loan conversion.
Related guides on inspections, cost overruns, payments, and build timelines.
Foundation, framing, mechanical, and final inspections tied to each draw release.
Contingency reserves, change orders, and borrower cash for overruns.
Interest-only during construction vs. full P&I after permanent conversion.
Typical build timelines and program completion windows.
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Construction funds are held by the lender and released in draws as work milestones are completed. The builder submits a draw request with invoices and progress documentation. An inspector verifies the work, and the lender releases payment — often as a joint check to the builder and borrower.
The first draw typically follows foundation or early-stage milestones defined in your draw schedule — not at closing. Some programs allow an initial draw for permits or site prep; timing varies by lender and builder contract. Interest-only payments during construction are usually based on amounts already drawn.
Most construction budgets include a contingency reserve — often around 5–10% — held back for cost overruns or unexpected issues. Draws may also retain a small percentage until final completion and certificate of occupancy. Unused contingency may reduce the loan balance or stay in escrow per program rules.
No. Draw schedules, inspection requirements, and holdback percentages vary by program, lender, and project scope. This page is educational only and is not a commitment to lend. Ryan and Steve walk through draw mechanics for your specific construction file.
Ryan & Steve map milestone draws, contingency holdbacks, and payment timing to your builder contract — so there are no surprises when invoices come due.