The part that surprises first time builders is that the money does not arrive. Not all of it, and not at closing.
Land funds at closing, because you have to buy it. The construction budget sits with the lender and is released in stages as work is completed and verified. That single fact drives the schedule, the cash flow, and most of what goes wrong.
The schedule of values
Before anything funds, the budget is broken into lines by trade and phase, each with a dollar figure. That document is the schedule of values, and it is what every draw is measured against.
A simplified version for a single family build:
| Phase | Share of budget |
|---|---|
| Sitework, excavation, foundation | 15% |
| Framing and roof deck | 20% |
| Roof, windows, exterior dry-in | 15% |
| Rough electrical, plumbing, HVAC | 15% |
| Insulation and drywall | 10% |
| Interior finishes, trim, paint | 15% |
| Final systems, fixtures, punch | 10% |
Yours will differ. What matters is that it exists, that it is agreed before closing, and that the numbers add to the budget the loan was underwritten on.
How a draw actually happens
- You complete a phase.
- You submit a draw request against the relevant lines.
- An inspector visits and confirms the work is in place.
- The lender releases funds for the completed portion.
- You pay your subs.
Most lenders hold a retainage, commonly 10%, on each line until the phase is signed off or the project is complete. It is not a trick. It is what protects the lender from paying for work that then has to be redone.
The cash flow problem nobody warns you about
Read that sequence again and notice the order. You complete the work, then you get paid for it.
Which means you or your general contractor front each phase. On a $260,000 build with seven phases, that is roughly $37,000 of float at any given moment, before retainage.
This is the single most common reason a build stalls, and it has nothing to do with the loan being wrong. Budget the float, or agree terms with your GC where their payment schedule matches your draw schedule rather than preceding it.
Interest works in your favour here
One genuine benefit of the draw structure: you do not pay interest on money you have not received.
Land funds at closing, so that portion accrues from day one. The construction portion accrues only as it is drawn, which across a twelve month build works out to roughly half of what a full balance would cost.
Most construction calculators get this wrong and charge the entire loan for the entire term, which makes building look far more expensive than it is. The construction calculator charges the drawn balance, which is why its interest figure comes in materially lower than a naive estimate.
Where draws get delayed
The inspection is not scheduled. The most common cause, and entirely avoidable. Request the draw before the phase finishes, not after.
The work does not match the schedule of values. You framed and also did some rough plumbing, and the request mixes lines. Keep requests aligned to the document everyone agreed to.
Lien waivers are missing. Most lenders want waivers from subs paid out of the prior draw before releasing the next one. Collect them as you go.
Change orders that were never approved. Work outside the agreed budget does not fund automatically. Get changes approved in writing before the trade shows up, not after.
Before you close
Three questions worth asking any construction lender, in this order:
- What triggers a draw, and who inspects?
- How many days from request to wire?
- What retainage is held, and when is it released?
The answers determine your float, which determines whether the build finishes on schedule. They matter more than a fraction of a point on the rate.
Run the numbers on the construction calculator, which sizes the loan against both cost and finished value and shows which of the two binds. When it works, send it over.