What a draw actually is

A draw is a partial release of your construction loan funds tied to a specific phase of completion. Rather than handing your builder the full budget on day one, the lender funds the build in pieces — each piece verified by an on-site inspection before money moves.

This protects three parties at once:

• The borrower (you), because funds released match work actually completed
• The builder, because each phase is cleanly paid as it finishes
• The lender, because the loan balance never gets ahead of the value on the ground

The 5-to-10 draw framework

Most conventional OTC loans use a draw schedule with between 5 and 10 milestones. Fewer on simpler builds (a tight production-style home might use 5). More on complex custom builds (a full-custom mountain home might use 9 or 10). The exact number gets set at closing, matched to your specific project.

A typical 7-draw schedule for a Front Range stick-built custom looks like this:

1. Draw 1 (20–25% of budget): site work, foundation, slab, framing lumber delivered
2. Draw 2 (15%): framing complete, roof dried in, exterior windows and doors installed
3. Draw 3 (15%): mechanical rough-in complete (plumbing, electrical, HVAC)
4. Draw 4 (15%): insulation, drywall, exterior siding / stucco
5. Draw 5 (10%): cabinets, interior doors, trim, paint
6. Draw 6 (10%): flooring, fixtures, appliances, mechanical trim-out
7. Draw 7 (10–15%): final punch, certificate of occupancy, final inspection

Exact percentages shift by builder, project, and program. Rural builds with significant site work (well, septic, long driveway) usually front-load even more than 25% into draw 1.

The initial 20–25% draw, explained

The first draw is almost always the largest. Here's why: foundation and framing concentrate a huge chunk of material cost and labor into the first four to eight weeks of the build. Concrete, rebar, forms, framing lumber, framer labor, and roof trusses run up fast. If the first draw were only 10% of budget, your builder would be funding the first four weeks out of pocket.

Plan for it. When you're pricing the project, know that roughly one in every four budget dollars will release on the first draw.

How a draw actually happens — step by step

This is the part most first-time borrowers don't see until it's happening:

1. Builder submits a draw request listing the phase complete and the dollar amount requested. Most programs use a standardized form.
2. Inspector visits the site. An independent third-party inspector confirms the stated completion percentage by physically looking at the work.
3. Inspection report returns to the lender. If the work matches the draw request, we proceed. If it doesn't, the draw is adjusted down to what's actually complete (or held until the phase is fully done).
4. Lien waivers collected. On most programs, the builder submits partial lien waivers from subs and suppliers showing prior payments are cleared.
5. Funds release. Usually within 3–5 business days of a clean inspection.

The whole cycle — request to funds-in-hand — typically runs 5 to 10 business days per draw. Your builder has probably done this hundreds of times and knows the rhythm.

Timing between draws — what to expect

Draws don't come on a calendar — they come when phases finish. For a standard 5,000-square-foot custom home on the Front Range, the typical rhythm looks like this:

• Closing to Draw 1: 30–45 days (permit finalization, site work, foundation pour)
• Draw 1 to Draw 2: 30–60 days (framing and dry-in)
• Draw 2 to Draw 3: 30 days (rough-ins)
• Draw 3 to Draw 4: 30–45 days (insulation, drywall, exterior)
• Draws 4–7: increasingly overlapping phases, usually 60–120 days to complete

Total build time on a clean project: 8–12 months. Weather (Front Range winter), supply chain, and custom detail all stretch the envelope.

Cash flow planning for borrowers

During construction, you'll typically pay interest-only on the drawn balance of the loan. That means your monthly payment starts small and grows as draws release:

• Month 1 payment: interest on whatever was drawn at closing (usually the lot value)
• Month 2–3 payment: interest on drawn balance plus draw 1
• Late-stage payments: interest on roughly the full loan balance
• Conversion payment: full principal + interest on the final permanent loan

Plan your household budget for the final payment — not the first one. If you're currently in a rental or a sold home, the construction-phase payments are manageable. The real number is what you'll pay starting the month the loan modifies.

Reserves — why we care about them

Most OTC programs require liquid reserves at closing. The reason: construction has variance. If the build runs three months long, you may pay construction-phase interest longer than planned. Reserves give you (and the lender) confidence you can ride out a normal delay without stress.

Plan for reserves as separate from your down payment. Typical requirements: 2–6 months of future permanent-loan PITI, held liquid at close.

Five draw-schedule mistakes to avoid

1. Front-loading your own cash expecting it to come back. If you pay your builder out of pocket for work that should have been a draw, we can't retroactively reimburse you. Use the schedule.
2. Missing the inspection window. Schedule the inspector promptly when a phase finishes — don't let the project sit idle while waiting for a draw.
3. Overbuilding the budget without contingency. A 5–10% contingency line protects every draw downstream.
4. Agreeing to cost increases mid-build without a change order. Scope changes need to be documented, priced, and either absorbed by contingency or funded with borrower cash. The loan amount is locked at closing.
5. Ignoring the construction-phase interest math. Plan for 8–12 months of interest-only payments on a growing balance. It's not unmanageable — it's just real money.

Next step

The best way to understand your specific draw schedule is to walk through it before you close. A 20-minute scenario call lets us sketch the budget, the likely draw breakdown, and the cash-flow projection side by side so you know exactly what's coming.

Homestead Capital Partners · Jon Howard NMLS #2587985 · Licensed CO · NEXA Lending LLC · NMLS #1660690 · 5559 S Sossaman Rd Bldg 1 Ste 101 Mesa AZ 85212 · Equal Housing Lender