How Do Construction Loan Draws Work? (Conventional & Jumbo)

The short answer

How do construction loan draws work? On a conventional or jumbo construction loan, your lender doesn't hand your builder all the money at closing. Instead, the builder is paid in stages, called draws, and each one is released only after an inspector confirms that phase of the work is done. The stages follow a draw schedule that's agreed on before construction starts. In the next few minutes, we'll walk through how that works and what it means for you. This is general education, not loan advice, and every lender handles draws a little differently.

What is a construction draw?

A draw is simply a payment from your construction loan to your builder, tied to work that's actually been completed. Think of it as pay as you go. The point is protection. If the lender paid everything up front and the builder walked away, you'd be left with a loan and an unfinished house. Paying in stages keeps the money in line with the value that's been built on your lot, which protects you and the lender at the same time.

How is the draw schedule set?

The draw schedule is set before you close. It's built from your construction contract, your detailed budget, and your scope of work. A typical schedule ties draws to milestones, like site work and foundation, framing and roof, rough-in plumbing, electrical, and mechanical, then drywall, interior finishes, and final completion. Some lenders use a fixed number of draws; others use percent-complete inspections on each line of the budget. Your builder, you, and the lender all sign off on the schedule, so it's worth reading closely. The more detailed your scope of work, the smoother draws tend to go.

What happens on each draw request?

Here's what happens each time. The builder submits a draw request for the work that's been completed. The lender sends an inspector, or uses a third-party draw service, to confirm the work is really there and matches the plans. Many lenders also require lien waivers, showing that subcontractors and suppliers from the last stage were paid, so no one can put a lien on your home later. Some lenders ask you to sign off on each draw too. Once everything checks out, the funds are released, often straight to the builder. Some lenders hold back a small portion, called retainage, until the very end.

What do you pay during the build?

What do you pay while the home is being built? With many construction loans, you pay interest only on the money that's actually been drawn, not on the full loan. So early on, when little has been drawn, your payment is smaller, and it grows as more draws go out. Some lenders build that interest into the loan as a reserve instead. The details vary a lot, so ask your lender exactly how it works, and check your Loan Estimate for the specifics on your loan.

What if costs run over budget?

What if the build runs over budget? This is where draws can get stressful. If you add upgrades or the builder hits a surprise, those changes usually go through a change order that the lender has to review. Because the loan amount is set at closing, extra costs often have to be covered by you, sometimes before the next draw can be released. That's why many lenders want a contingency reserve built into the budget from the start. Planning for surprises up front is far easier than scrambling mid-build.

How do jumbo builds differ?

How do jumbo builds differ? A jumbo construction loan is for a project above the conforming loan limits, which vary by county. The draw process is the same idea, but with bigger dollars at stake, lenders often ask for more: more detailed budgets, more frequent or more thorough inspections, stronger builder credentials, and sometimes extra reserves. Because jumbo loans aren't bought by Fannie Mae or Freddie Mac, each lender sets its own rules, so draw processes can vary more from one jumbo lender to the next.

Questions to ask a lender

Before you choose a lender, ask about their draw process. How many draws do you allow, and who does the inspections? How quickly are funds released after an inspection? Do you require lien waivers or retainage? Do I need to approve each draw? And how do you handle change orders and cost overruns? Builders care about these answers too, so it's smart to bring your builder into the conversation.

Talk with a lender

If you'd like to talk with a lender that offers conventional or jumbo construction loans, we'll connect you with lenders who work with builds like yours. Visit myconstructionpath.com/match. Check the description for our articles on construction draws, cost overruns, and payments during construction. My Construction Path is not a lender and does not make loans or credit decisions. We connect you with lenders who may be able to help. Not all borrowers will qualify. Equal Housing Opportunity. Thanks for watching.