How construction loan draws work
Updated October 1, 2026
The draw process, step by step
- Draw schedule. At closing you and the lender agree how the loan is released — by phase (foundation, framing, dry-in, rough-ins, finishes) or by percent complete.
- Draw request. When a milestone is reached you submit a request: the completed budget lines, invoices and, often, lien waivers from the subs and suppliers you paid.
- Inspection. The lender sends an inspector (or uses the title company) to confirm the work is in place and the percent complete matches the request.
- Funding. The lender wires the approved amount, sometimes minus a retainage holdback.
- Paying the trades. You pay subs and suppliers and collect their lien waivers — which you will need for the next draw.
An example draw schedule
| Draw | Milestone | Share of the loan |
|---|---|---|
| 1 | Foundation complete | 15% |
| 2 | Framing and dry-in | 25% |
| 3 | Rough-ins (plumbing, electrical, HVAC) | 20% |
| 4 | Drywall and interior finishes | 25% |
| 5 | Final inspection and certificate of occupancy | 15% |
Interest: why it grows as the house goes up
On most construction loans you pay interest on the balance drawn so far, not on the full commitment. Early in the build the interest is small; by the last draws you are paying on almost the whole loan. That is why the real cost of money depends on how fast the job moves — a two-month delay near the end costs far more than one at the start.
Retainage and lien waivers
Retainage is a percentage some lenders hold back from each draw until the house is finished, to make sure the job gets completed. Whether it applies, and how much, is in your loan agreement.
A lien waiver is a document in which a sub or supplier gives up the right to file a lien for the amount they were paid. A conditional waiver takes effect when the payment clears; an unconditional one is effective immediately. Missing waivers are one of the most common reasons a draw gets held.
Why draws squeeze your cash
You usually pay the trades before the bank funds the draw. Between the request, the inspection and the wire, days go by — and that gap comes out of your pocket. Track every draw as requested versus funded, with the days it has been waiting, so you can call the lender with the numbers in hand.
- Request draws as soon as a milestone is complete, with the waivers ready.
- Keep a cash cushion for at least one draw cycle.
- Watch budget lines against the lender budget: an overrun on one line can hold the whole draw.
Frequent questions
How many draws does a construction loan have?
It is set in your loan agreement. Schedules of four to seven milestone draws are common, but some lenders release by percent complete instead of fixed milestones.
Do I pay interest on the whole construction loan?
Usually not. On most construction loans interest accrues only on the amount drawn so far, so it grows as the build progresses.
What happens if a draw inspection fails?
The lender funds less than requested, or nothing, until the work is complete. You re-request once the milestone is done — another reason to request only finished milestones.