Construction Draw Schedule: How It Works, With an Example
A construction draw schedule is the agreed plan for when money gets released during a build and how much is released each time. Instead of paying for the house all at once, the client or the lender pays in installments called draws, each one tied to a completed stage of work or to the cost of work in place. It protects the client from paying for work that isn’t done, and it protects the builder from financing someone else’s house.
Cash flow kills more builders than bad craftsmanship does. A sloppy draw schedule means you’re fronting money for weeks at a time, and hoping is not a cash management strategy.
What is a construction draw schedule?
It’s a list of payment points with an amount or percentage attached to each one. The schedule lives in your contract and, when there’s a construction loan, in the lender’s loan documents too. Those two need to match. When they don’t, the builder is usually the one waiting on a check.
A draw schedule answers four questions:
When: what event triggers each payment
How much: a fixed amount, a percentage of the contract, or actual costs incurred
Who verifies: the client, a lender’s inspector, or both
What paperwork: the draw request, invoices, lien waivers, and anything else required before funds are released
How does a construction draw schedule work, step by step?
The schedule is agreed before construction. Builder, client, and lender sign off on the milestones and amounts.
The builder hits a milestone or reaches the end of a billing period.
The builder submits a draw request. This usually includes the amount requested, the work completed, and supporting documents.
Someone inspects. Lenders commonly send an inspector to confirm the work is in place. On cash jobs, the client or their representative does the walk.
Title and lien paperwork is checked. Many lenders want lien waivers and a title update before funding.
Funds are released, to the builder, to the client, or jointly, depending on the lender.
The builder pays trades and suppliers and collects their waivers for the next round.
The gap between step 2 and step 6 is your exposure. Ask how long it runs before you sign anything.
What does a construction draw schedule example look like?
Here’s one illustrative example of a milestone-based schedule for a custom home. Treat it as a picture of the concept. Your lender, your contract type, and your state’s rules will change it.
Foundation complete: 15%
Framing complete and roof dried in: 20%
Plumbing, electrical, and HVAC rough-ins complete: 15%
Insulation and drywall complete: 15%
Cabinets, interior doors, and trim installed: 15%
Flooring, countertops, paint, and fixtures complete: 15%
Final completion and certificate of occupancy: 5%
On a hypothetical $1,000,000 contract, that first draw would be $150,000 when the foundation is done, and the last $50,000 would come at completion. Many contracts also include a deposit at signing, which I wrote about in The Right Way to Handle Customer Deposits. Deposit rules vary by state, so check yours.
How should construction draw schedule percentages be set?
Set them so each draw tracks what you’ve actually spent, plus your overhead and profit earned to that point. The percentages should come out of your budget. If your foundation, site work, and permits add up to 18% of the job and your first draw is 10%, you’ve just made a loan to your client.
A few things I’d push on:
Build it from the budget, line by line. Add up the costs that land before each milestone. That’s why a clean budget and specifications package comes first. Our Budget and Specifications Template gives you the cost breakdown a draw schedule gets built on.
Watch the front end. Early phases are cash heavy: site work, concrete, lumber, window deposits.
Watch the back end too. A big final draw puts your profit in the payment most likely to be argued over.
Account for stored materials and deposits. Cabinets and windows often need money down months before they show up. Ask whether the lender will fund them.
Define “complete.” “Framing complete” should mean the same thing to you, the client, and the inspector.
What is a typical draw schedule for a construction loan?
A typical draw schedule for a construction loan has somewhere around five to ten draws, though this varies widely by lender. Lenders generally handle it one of two ways:
Milestone draws. A fixed percentage released at each defined stage, like the example above.
Percent-of-completion draws. The lender’s inspector estimates how complete each budget line is, and the lender funds that portion, often monthly.
Lenders may also hold back a portion of each draw as retainage until the end, charge inspection fees, require the borrower’s equity to go in first, and limit how often you can draw. None of that is universal. Get the lender’s actual draw procedures in writing before you finalize your contract, and build your payment terms around them.
How does a draw schedule for new home construction differ by contract type?
On a fixed-price contract, draws are usually milestones or percentages of the contract price. On a cost-plus contract, draws are usually periodic, often monthly or twice a month, based on actual invoices plus the builder’s fee. On a spec home, there’s no client at all, and the builder draws directly from the lender against the approved budget.
Whatever the type, the schedule belongs in the contract, with a stated number of days for payment and a stated consequence for late payment. More on that in what a custom home builder contract should include.
What mistakes do builders make with draw schedules?
Accepting the lender’s default schedule without checking it against the budget.
Vague milestones that leave room for “it’s not quite done” on every request.
No lien waiver routine. Collect them with every payment. See how lien waivers work.
Ignoring change orders. Changes should be paid when signed, separately from the draws, or the schedule drifts out of balance.
Drawing ahead of the work. It feels great until the last third of the job, when the money is gone and the house isn’t finished.
Frequently asked questions
How many draws are in a construction draw schedule?
Commonly somewhere between five and ten, but it depends on the lender, the size of the project, and the contract type. Cost-plus jobs billed monthly may have more.
Who approves a construction draw?
On a financed job, the lender approves it, usually after an inspection and often with the borrower’s sign-off. On a cash job, the client approves it according to the contract.
How long does it take to get paid on a draw?
It varies by lender. A few business days to a couple of weeks from request to funding is common, so ask up front and plan your payables around the real answer.
What happens if costs run ahead of the draw schedule?
The builder ends up funding the gap out of pocket. That’s why the schedule should be built from the budget and why change orders should be collected separately.
BTW, if you want the detailed budget that a solid draw schedule gets built from, grab our Budget and Specifications Template over at the Building Optimal Shop, where you can check out the rest of our swag to build a better business. Proceeds go to benefit, Exponencialistas, my non-profit investing in entrepreneurs transforming their communities in Latin America.