Learn: Home Construction Loan Draw Schedules for Investors
Learn how construction draw schedules work (with a 5-stage example table), how to ensure efficiency for draw schedules, and where to get funded.
Construction projects require careful planning. Even a relatively simple residential project might involve numerous contractors, subcontractors, suppliers, and other individuals or businesses, all of whom need to get paid for their goods or services.
If you’re a property owner overseeing a construction project, you don’t want to pay for materials you haven’t received or services that aren’t complete. The same goes for a lender providing funding for a construction project. A construction loan draw schedule establishes a detailed plan for how and when a lender will disburse funds.
Read on to learn more about how draw schedules for construction loans can help projects run smoothly and efficiently.
What is a draw schedule for construction projects?
Photo by Daniel McCullough on Unsplash
A construction draw schedule identifies when contractors, subcontractors, and others will get paid for specific services or materials. It typically divides a project into multiple steps and describes what needs to happen before the lender will disburse payments.
A very simple construction draw schedule might be divided into 4 or 5 stages, such as the following:
Planning and permitting
Preparation of the property, including the foundation
Construction of the house or other structure
Interior finishing, such as painting, carpeting, and tiling
Exterior finishing, such as landscaping
Each stage of the process might have multiple steps. Each step might have requirements that contractors, subcontractors, or others must meet before they can get paid. A sample construction draw schedule is provided below.
A well-written draw schedule can benefit everyone involved in a project. It provides assurance that each party’s interests are protected. Contractors and other service providers know when to expect payment. The owner and lender have a set of benchmarks to track the progress of the project and assess the quality of the work.
How construction draw schedules work (with example table)
Photo by Monica Silvestre on Pexels
In many projects, the general contractor proposes a construction draw schedule. The contractor, owner, and lender may negotiate the terms of the final draw schedule. The owner or lender might retain the services of an appraiser to determine the value of each stage of the construction process.
The size and duration of the draw schedule, including the number of stages, steps, and payments, will depend on the size and complexity of the project. A commercial construction loan draw schedule might be significantly more complicated, for example, than a draw schedule for a single-family home construction project.
The following is a hypothetical new home construction draw schedule for a single-family residence:
| Stages | Item cost | Draws |
|---|---|---|
| STAGE 1: PLANNING AND PERMITTING | ||
| Blueprints, specs, etc. | $5,000 | |
| Permits and inspections | $3,000 | |
| Survey | $1,000 | |
| DRAW 1 | $9,000 | |
| STAGE 2: PREPARATION | ||
| Lot clearing and grading | $3,000 | |
| Utility hookups and fees (water, sewer, etc.) | $4,000 | |
| Excavation | $4,000 | |
| Foundation | $10,000 | |
| DRAW 2 | $21,000 | |
| STAGE 3: CONSTRUCTION | ||
| Framing | $40,000 | |
| Windows | $5,000 | |
| Exterior doors | $2,000 | |
| Roofing | $10,000 | |
| Siding | $10,000 | |
| HVAC | $7,000 | |
| Electrical rough-in | $7,000 | |
| Plumbing rough-in | $7,000 | |
| Insulation | $4,000 | |
| DRAW 3 | $92,000 | |
| STAGE 4: INTERIOR FINISHING | ||
| Drywall | $12,000 | |
| Interior trim | $5,000 | |
| Interior doors | $3,000 | |
| Interior painting | $6,000 | |
| Countertops | $6,000 | |
| Cabinets | $4,000 | |
| Lighting and electrical fixtures | $3,000 | |
| Plumbing fixtures | $3,000 | |
| Flooring | $9,000 | |
| DRAW 4 | $51,000 | |
| STAGE 5: EXTERIOR FINISHING | ||
| Exterior painting | $6,000 | |
| Driveway | $8,000 | |
| Deck | $8,000 | |
| Fencing | $10,000 | |
| Landscaping | $10,000 | |
| DRAW 5 | $42,000 | |
| TOTAL DRAWS | $215,000 |
How can I ensure efficiency for construction draw schedules?
From a borrower’s point of view, an efficient draw schedule is important for keeping the project on track and managing costs. When you or the lender has control over the disbursement of funds, it makes unexpected cost overruns less likely since someone is keeping an eye on the budget. That said, too much micromanagement through the draw schedule can bog a project down. An efficient construction loan draw schedule:
Takes all expected costs into account;
Provides milestones for payments to contractors and others;
Allows for some cost overruns and other contingencies; and
Leaves everyone alone to do their jobs.
Time considerations
The construction draw schedule example provided above does not give dates or time frames for the various stages of the project. The general contractor, owner, and lender may agree on specific dates or a range of dates that give the various contractors enough time to perform their work. The draw schedule needs to be flexible enough to allow for delays. A project could be moving along faster than expected, and then it rains for two weeks straight. A draw schedule that does not allow for factors like the weather is going to cause problems for everyone.
Another factor to consider when creating a construction draw schedule is the amount of time that the lender will need to disburse the funds. Depending on the size of the disbursement, a lender might not be able to send the funds at a moment’s notice. When the lender knows the schedule and is part of the conversation regarding the project’s progress, they can have payments ready when needed. A lender who is out of the loop, however, might not be able to make payments upon demand by the borrower. This could result in a contractor not getting paid, which can lead to work stoppages and delays in the later stages of a project.
Get new construction projects funded from a trusted private lender
Capstone Capital Partners funds construction projects all over Texas. We understand the importance of accessing construction draws quickly during a project. Our fast process, friendly attitude, and flexible loan options maximize profit and minimize headaches.
With Capstone, you can access your draw in just four business days! Applying is easy - start by answering a few questions online right now.
