What is a construction loan draw schedule and how does it work?

Your lender will not hand you the full loan amount at closing. Instead, it releases the money in stages under a draw schedule, tied to how far the home has actually progressed. Each stage, called a draw, pays your builder after a specific phase of work is done and inspected. A typical schedule pays out after the foundation, framing, dry-in (roof and windows), mechanicals (plumbing, electrical, HVAC), drywall, and final completion. Before each draw, the lender sends an inspector or appraiser to confirm the work is finished. You pay interest only on the money drawn so far, not the whole loan, which keeps your payments low early in the build. The CFPB puts it plainly: construction loan money "is typically provided in a series of advances as the construction progresses."

Below is how a real Arizona draw schedule is structured, who inspects each stage, how interest is calculated, and what can go wrong.

Why construction loans pay in stages

Construction loans release money in stages to protect both the lender and you. The lender does not want to fund a finished house that does not exist yet, and you do not want a builder holding your entire loan before the work is done. Paying in draws ties every dollar to completed, inspected work, so the money tracks the building.

This staged structure is built into federal lending rules. Regulation Z, Appendix D, covers multiple-advance construction loans and sets out how lenders estimate and disclose terms when the timing and amount of each advance is not known at closing. It is the legal backbone for the draw model, and it is why your loan documents talk about advances instead of a single disbursement.

The practical effect is that your loan balance grows over time, not all at once. At the foundation stage you might owe a small fraction of the loan. By drywall you owe most of it. Your interest payment rises with the balance, which is why early payments are small and later ones are larger. This is normal and expected on every construction loan.

A typical Arizona draw schedule, stage by stage

A standard Arizona construction loan uses five to seven draws tied to clear milestones. The exact split varies by lender and builder, but the sequence follows the order a home is actually built. Here is a common structure, with the rough share of the budget each stage releases:

• Draw 1, site work and foundation (about 15 to 20 percent). Lot clearing, grading, footings, and the slab or post-tension foundation. In Arizona, post-tension slabs are common because they handle the expansive clay soils found across Maricopa and Pinal County.
• Draw 2, framing (about 20 percent). Walls, floor systems, and roof structure go up. This is when the home first takes shape, and it often releases the single largest payment.
• Draw 3, dry-in (about 15 percent). Roofing, windows, and exterior doors are installed so the home is weather-tight. This matters during monsoon season, roughly mid-June through September, when storms can stall an open frame.
• Draw 4, mechanicals (about 15 to 20 percent). Rough plumbing, electrical, and HVAC are run before the walls close up. HVAC sizing matters here, given Arizona summer heat that regularly tops 110 degrees.
• Draw 5, insulation and drywall (about 15 percent). Insulation goes in, drywall is hung and finished, and the interior is prepped for paint and trim.
• Draw 6, final completion (about 15 to 20 percent). Finishes, fixtures, cabinets, flooring, and the items needed for the certificate of occupancy. The last slice is usually held until final inspection.

Some lenders fold these into fewer, larger draws, and some builders ask for more frequent, smaller ones to keep cash flow steady. The total always adds up to your full loan amount plus your down payment.

How inspections, interest, and retainage work

Every draw is gated by an inspection, so money only moves after the work is real. When your builder requests a draw, the lender orders an inspection, usually by a third-party inspector or the appraiser, to confirm the stage is actually complete. Once it clears, the lender releases that draw, often within a few business days. This is the single biggest reason draws get delayed: if the work is not truly finished, the inspector kicks it back and the payment waits.

Interest is charged only on the amount drawn, not the full loan. Regulation Z, Appendix D, gives lenders two ways to estimate interest on these loans: one assumes half the loan is outstanding for the whole construction period, the other assumes the full amount. Your lender will disclose which method applies. During the build you usually make interest-only payments, and on some loans, as the CFPB notes, "payments sometimes start six to 24 months after the loan is made." Construction loans also carry higher rates than permanent mortgages, so check a current rate benchmark like the Federal Reserve's H.15 release and confirm your rate with the lender.

These lender inspections are separate from the city or county building inspections your project also needs. A draw inspection confirms the work is far enough along to release money, while a code inspection confirms the work meets the building code. Both have to happen, and a failed code inspection can hold up a draw too.

Many draw schedules hold back retainage, typically 5 to 10 percent of each draw, released only at the end. Retainage gives the lender and owner leverage to make sure the builder finishes punch-list items and corrects defects. Government programs streamline some of this. The USDA single-close program, for example, guarantees the loan at closing before construction even begins, and VA construction loans release funds through periodic draws under a VA-registered builder.

For a quick definition you can drop into a search, see our draw schedule glossary entry.

What can go wrong and how to avoid it

The most common draw problems are delays, shortfalls, and disputes, and most are preventable with planning. Knowing where a draw schedule breaks down helps you keep your build and your loan on track.

The biggest risk is a draw delay. If a phase is not fully complete when the inspector arrives, the draw is denied until the work is done and re-inspected. That can leave your builder short on cash to start the next phase. Build a small buffer into your timeline and confirm a stage is truly finished before requesting the draw.

A second risk is a budget shortfall. If costs run over, say the soils report calls for a deeper foundation, or framing lumber prices jump, a draw may not cover the actual bill. This is why lenders want a contingency line of 5 to 10 percent in the budget. Without one, you cover overruns out of pocket.

Two more to watch:

• Appraisal gap. The lender lends against the appraised value of the finished home. If that value comes in below cost, you fund the difference. Price your finishes realistically before you apply.
• Builder disputes. If you and your builder disagree on whether a stage is complete, the inspection settles it, but it can stall payment. A clear, line-item draw schedule in your contract prevents most of these fights.

Draw schedules, interest methods, retainage, and rates vary by lender and loan type, and they change over time. Confirm your exact draw schedule, inspection process, and current rate with your Arizona-licensed lender and builder before construction starts.

How Jematell Homes helps

Clear allowances and an honest cost breakdown are how we start every custom home. If you are planning a custom home in Scottsdale, Rio Verde, or the greater Phoenix metro, we are happy to walk through your project.

Sources

• CFPB: What is a construction loan?
• CFPB: Appendix D to Part 1026 (Multiple-Advance Construction Loans)
• USDA Rural Development: Single Close Construction-to-Permanent Financing
• VA: VA offers construction loans for Veterans to build their dream homes
• Federal Reserve: H.15 Selected Interest Rates