When you get a construction loan, they don’t just hand you the money all at once to put in the bank and pay people out of it.
The lender disburses money to you and your contractor on a payment plan, called a Draw Schedule.
Certain marks have to be met before more money is paid out.
This is our Draw Schedule:
5% of Purchase Price upon loan closing.
15% of Purchase Price when foundation walls are poured or block completed prior to spray/waterproof
30% of Purchase Price when framed, windows/doors set, sheathing and felt paper applied prior to shingles
30% of Purchase Price when mechanicals roughed in/insulated/drywall is hung, prior to tape and finish
10% of Purchase Price when interior trim is hung, prior to cabinetry and countertops
10% of Purchase Price when the home is substantially completed (“Final Draw”)
That doesn’t mean that 15% of the cost of the home is the foundation, 30% is wood and doors, etc. It is just a schedule. It basically keeps the bank from overpaying up front, then the contractor having no incentive to finish.
“The goal is to make progress payments to the contractor as work is completed. You don’t want to pay for materials that have not been delivered or work that is not complete.”
“The draw schedule is important because an accurate description of these milestones may promote your goal of making sure that the amount of money the builder has received is not significantly ahead of the progress of the work. For instance, if the builder has been paid 80% of the contract amount, but only 50% of the work has been completed, you may run into difficulties in having the builder complete your home in a timely and workmanlike manner.”