Construction Loan Draw Process: Step-by-Step Guide
Quick Answer
Construction loan draws release funds in stages as work is completed. The process involves submitting a draw request, lender inspection of completed work, approval, and disbursement. Most projects have 4-8 draws over the construction period.
Table of Contents
The Draw Process
Step 1: Complete Work
Complete the construction milestone associated with the next draw on your schedule of values. Ensure work meets building codes and lender specifications.
Step 2: Submit Draw Request
Submit a formal draw request to your lender including:
- Updated schedule of values with completion percentages
- Photos of completed work
- Lien waivers from subcontractors and suppliers
- Invoices for materials and labor
- Any change order documentation
Step 3: Lender Review
The lender reviews your draw request for:
- Consistency with the approved schedule of values
- Reasonable completion percentages
- Required documentation completeness
- Budget tracking against total approved amount
Step 4: Inspection
The lender orders a third-party inspection to verify:
- Work described in the draw request is actually completed
- Quality of workmanship meets standards
- Progress matches reported completion percentages
- No obvious code violations or safety issues
Step 5: Approval
If the inspection confirms the work, the lender approves the draw. Some lenders apply retainage (5-10% holdback) until project completion.
Step 6: Disbursement
Approved funds are wired or transferred to the builder. Depending on the lender, funds may go directly to the borrower, the general contractor, or be split between both.
Typical Draw Schedule
Draw 1: Site Work and Foundation
- Clearing, grading, excavation
- Foundation poured and cured
- Typical amount: 15-20% of budget
Draw 2: Framing
- Walls, roof structure, sheathing
- Windows and exterior doors installed
- Typical amount: 20-25% of budget
Draw 3: Mechanical Rough-In
- Plumbing, electrical, HVAC rough-in
- Insulation installed
- Typical amount: 15-20% of budget
Draw 4: Interior Finishes
- Drywall, paint, flooring
- Cabinets and countertops
- Typical amount: 20-25% of budget
Draw 5: Final Completion
- Fixtures, appliances, trim
- Landscaping, exterior finishes
- Final cleaning and punch list
- Typical amount: 15-20% of budget
Common Draw Delays
- Incomplete documentation: Missing lien waivers or invoices
- Inspector scheduling: Backlogs can add days to the timeline
- Work not matching request: Overstating completion percentages
- Change orders: Unapproved changes delay processing
- Lien issues: Disputes with subcontractors can hold draws
Related Reading
Key Takeaways
- ✓Draws are released after inspections verify completed work
- ✓Submit complete documentation to avoid processing delays
- ✓Plan cash flow around the draw timeline
- ✓Maintain accurate records of all work completed