The draw schedule is the backbone of construction loan financing. It determines when money flows from the lender to your contractor, and it's the mechanism that keeps your construction project financially organized and accountable. Understanding how draw schedules work — and how to manage them effectively — is essential for anyone building a custom home.
What Is a Draw Schedule?
A draw schedule is a predetermined plan that outlines when funds will be released from your construction loan and what construction milestones must be completed to trigger each release. Think of it as a payment plan tied to progress: money is released when work is done, not before. This structure protects both the lender (who doesn't want to fund work that hasn't been completed) and the borrower (who doesn't want to overpay a contractor for incomplete work).
A typical residential construction draw schedule includes 4–7 draws over the course of the build, though the exact number depends on your lender, the size of the project, and the complexity of the construction.
Typical Draw Stages
While draw schedules vary by lender and project, most follow a similar structure tied to the major phases of construction:
- Draw 1 — Foundation: Released after the foundation is poured, inspected, and cured. Typically 10–15% of the total loan amount.
- Draw 2 — Framing: Released after the structural framing, roof sheathing, and exterior sheathing are complete. Typically 15–20% of the loan.
- Draw 3 — Rough-In: Released after plumbing, electrical, and HVAC rough-in work is complete and has passed inspections. Typically 15–20% of the loan.
- Draw 4 — Drywall and Insulation: Released after insulation is installed and drywall is hung (and sometimes taped and finished). Typically 10–15% of the loan.
- Draw 5 — Interior Finishes: Released after flooring, cabinetry, trim, and most interior finishes are installed. Typically 15–20% of the loan.
- Draw 6 — Completion: Final draw released after the certificate of occupancy is issued and all punch-list items are resolved. Typically 10–15% of the loan.
The Draw Request Process
When your contractor is ready to request a draw, they submit a draw request to the lender. This request typically includes a description of the work completed, the amount requested, lien waivers from subcontractors and suppliers for work covered by previous draws, and any required inspection reports or permits.
The lender then sends an independent inspector to verify that the work described in the draw request has actually been completed to the required standard. This inspection typically happens within a few business days of the request. If the inspector confirms the work is complete, the lender releases the funds — usually within 3–5 business days of the inspection.
Lien Waivers and Their Importance
Lien waivers are a critical component of the draw process that many first-time builders overlook. A lien waiver is a document signed by a contractor, subcontractor, or supplier stating that they have been paid for their work and waive their right to file a mechanic's lien against your property for that amount. Most lenders require lien waivers from all parties who have performed work or supplied materials before releasing subsequent draws.
Collecting lien waivers protects you from the nightmare scenario where you've paid your general contractor but they haven't paid their subcontractors — leaving you with unpaid liens on your property even though you've made all your loan payments.
Managing the Draw Schedule
Effective draw management requires communication between you, your contractor, and your lender. Establish clear expectations upfront about the draw schedule, inspection timelines, and fund release procedures. Delays in the draw process — whether from slow inspections, incomplete work, or administrative bottlenecks — can stall construction and create cash flow problems for your contractor.
Keep a running log of all draw requests, inspection reports, and fund releases. This documentation is valuable if disputes arise and helps you track the financial progress of your project against the overall budget.
What Happens If Work Isn't Complete
If the lender's inspector determines that the work described in a draw request hasn't been completed to the required standard, the draw will be delayed or partially funded. The lender may release funds for the completed portion of the work and hold back the remainder until the outstanding items are finished.
This holdback mechanism is a feature, not a bug. It incentivizes your contractor to complete each phase fully before moving on and ensures that you're not paying for work that hasn't been done. Work with your contractor to understand exactly what must be completed before each draw can be requested.
Contingency Funds
Most construction budgets include a contingency reserve — typically 10–15% of the total construction cost — to cover unexpected expenses. How this contingency is handled in the draw schedule varies by lender. Some lenders hold the contingency in reserve and release it only if needed; others include it in the overall loan amount but require documentation of unexpected costs before releasing contingency funds.
Understanding how your lender handles contingency funds is important for budgeting and for managing your contractor's expectations about available funds.
A well-managed draw schedule is the foundation of a successful custom home build. Connect with a construction loan specialist who can walk you through the draw process and help you find a lender whose procedures work for your project. Once your home is built, use Custom Home Advisor to find qualified builders in your area.