Ground-Up Construction Loans: The Draw Schedule Explained

There is a moment on every ground-up project — usually about six weeks in, standing on a mud slab with a contractor asking for a progress payment — when a new builder understands what kind of loan they actually got. It is not a mortgage that arrives at closing and gets paid back later. It is a reimbursement engine: money moves to you in stages, after work is proven, against a budget both sides agreed to before anyone touched dirt.

Builders who internalize that rhythm finish their projects. Builders who fight it stall out with the foundation in and the money out. This is the map of the rhythm.

The loan shape: two numbers and a schedule

A ground-up construction loan underwrites two values and one plan:

• Land value + completed value. The loan advances against the project's worth when finished, capped by what the project costs to deliver. Leverage caps work like our flip sheet — up to 90% of project cost, capped by a percentage of completed value — but the "cost" now includes the lot, soft costs (permits, architecture, engineering), and the build itself.
• The budget, line by line. Every trade, every allowance, every fee — itemized before closing. This document is the contract the draws reimburse against.
• The schedule. Months to complete, tied to the loan's term. Our construction terms run with terms measured in the range the build actually takes — and the term clock starts at closing, not at first nail.

The fix-and-flip draw discipline is the closest cousin; ground-up is that system with a longer runway and a heavier front end.

The five-stage draw schedule

Most ground-up schedules break into five verifiable milestones:

What each stage needs to verify:

1. Site and foundation: passed footing/foundation inspections, engineer's letter where required, photos. The lender is verifying the most irreversible money in the project.
2. Framing and dry-in: structure standing, roof on, windows set, weather barrier complete. Municipal frame inspection passed.
3. Mechanicals: rough-in inspections passed for plumbing, electrical, HVAC. This stage generates the most inspection paperwork — keep the permit cards on site.
4. Finish: interiors finished, exterior complete, fixtures set. Partial draws are normal here — cabinetry in but flooring pending funds the cabinetry.
5. Final: certificate of occupancy, punch list closed, final inspection. The last draw releases against completion, and the lender's final inspection is the gate.

The front end is where projects die

Notice what the schedule implies: the borrower funds the earliest work. Permits, architecture, impact fees, and often the lot itself precede any draw. Then foundation work runs weeks before stage one verifies. A ground-up builder needs liquidity for the first ten to fifteen percent of the project before the reimbursement engine turns.

Underwrite that honestly:

• Soft costs are real money. Permits, plans, engineering, utility tap fees — commonly 5–10% of the budget, all spent before vertical progress shows.
• The lot is a decision. Owning it changes your leverage math; financing it folds it into project cost. Either way it belongs in the budget conversation at term-sheet time, not after.
• Carry starts at closing. Interest accrues on drawn balances from day one, which rewards a schedule that front-loads permits and long-lead orders during the closing window.

Budget discipline: the contingency you do not show

Ground-up budgets meet reality in predictable places: dirt (rock, groundwater, unsuitable soils), utility extensions, and lumber/steel price movement between quote and build. Experienced builders carry a 10–15% contingency — and, critically, keep it off the financed budget line.

When reality arrives:

• Change orders go to the lender the day the surprise appears, documented with cost and schedule impact. Early change orders are routine business; late ones are distress signals.
• Never rob a later stage to fund an earlier one. The draw schedule is sequenced because each stage's completion makes the next financeable. Raiding finish budget to cover framing overruns leaves the project unfinanceable at the end — the exact failure the schedule exists to prevent.

If the project genuinely outgrows its budget, the conversation with the lender happens early, with numbers: borrower-added capital, re-scoped allowances, or a budget amendment against revised completed-value support. All of those start with weeks of runway. None start at the final draw request.

The builder is part of the underwriting

On a renovation, the lender underwrites the budget and the ARV. On ground-up, the lender underwrites who is building it. Expect questions about your GC's completed projects, licensure, and financial depth — because the single strongest predictor of whether the collateral becomes a house is the track record of the person running the build.

First-time builders are not excluded; they are just underwritten harder. The practical strengtheners:

• A GC with completed projects in the lender's market.
• A fixed-price contract with a licensed, insured builder (cost-plus contracts read as open-ended risk).
• Your own construction experience documented, if any.

Owner-builder files — you as your own GC — are the hardest version. Possible, but expect the tightest scrutiny and the most verification per draw.

Quick answers to real questions

How long does a draw take to fund? Budget one to two weeks from a clean request: inspection scheduled, milestone verified, funds released. Incomplete inspection paperwork is what stretches that to three.

Can I get money for materials before they're installed? Staged materials get cautious, partial treatment versus completed work. If your plan depends on big early material purchases (long-lead windows, lumber packages), raise it at term-sheet time — some structures accommodate it explicitly.

What if I finish under budget? Undrawn budget retires at payoff; you pay interest only on funds actually drawn. Honest budgets beat padded ones for exactly this reason.

Can the loan convert to permanent financing at completion? That structure exists (construction-to-perm), but many builders instead exit into a DSCR loan once the property is leased and stabilized — which prices the finished asset on its income. Plan the exit before you break ground; the exit is the underwriting.

What happens at the end of the term if the build isn't done? Extensions are negotiated from the file's strength: progress against budget, remaining scope, and the exit plan. A project that is 90% complete with a credible exit extends easily. A stalled project with no narrative does not.

The reimbursement engine, respected

Ground-up construction lending is not harder than other investor credit — it is more sequenced. Money follows proof, proof follows milestones, and milestones follow a budget everyone believed at closing. Show up with a real GC, an honest contingency, and a draw calendar you own, and the engine funds your project all the way to the certificate of occupancy.