How Construction Loan Draws Work: From Initial Survey to Final Certificate of Occupancy
Building a custom home on your land is financed very differently than buying an existing home. Rather than disbursing a lump-sum mortgage at closing, banks issue a construction-to-permanent loan where funds are released in phases called 'draws.'
A clear understanding of draw schedules, third-party bank inspections, and subcontractor lien waivers ensures smooth cash flow and prevents stressful delays between your lender and builder.
The Typical Five-to-Seven Phase Draw Schedule
Most North Carolina regional lenders (such as First Citizens, Truist, Movement Mortgage, and local farm credit bureaus) structure construction loans into five to seven milestone disbursements:
Draw 1 (Deposit & Sitework): Site clearing, excavation, erosion control, driveway culvert installation, and initial foundation rough-in (typically 10% to 15%).
Draw 2 (Foundation & Subfloor): Completed footings, stem walls, waterproofing, perimeter drains, and framed subfloor deck (10% to 15%).
Draw 3 (Rough Framing & Dry-In): Exterior framing, roof trusses, roof decking, dry-in underlayment, exterior wall sheathing, and windows (15% to 20%).
Draw 4 (Rough Trades): Rough-in electrical, plumbing, HVAC ductwork, and passed municipal rough-in inspections (15% to 20%).
Draw 5 (Insulation & Drywall): Insulation inspection pass, hung, taped, and finished drywall, and exterior siding installation (10% to 15%).
Draw 6 (Interior Trim & Finishes): Cabinets, countertops, interior trim, paint, tile, and flooring installation (10% to 15%).
Draw 7 (Final & Retainage): Final trade trim-outs (fixtures, switches), HVAC startup, exterior grading/landscaping, final Certificate of Occupancy (CO) issuance, and release of the final 5% to 10% retainage.
Independent Bank Inspections Before Release of Funds
A bank will never wire draw funds simply because the builder sends an invoice. The lender dispatches an independent third-party construction inspector to the job site.
The inspector verifies that each work item claimed on the draw request is 100% complete. If the builder requested funds for rough plumbing but three bathtubs are not yet piped, the inspector deducts that percentage from the approved disbursement.
Subcontractor Lien Waivers: Protecting Your Property Title
Before releasing subsequent draws, banks require partial lien waivers from the general contractor, major material suppliers (such as lumber yards), and trade subcontractors.
Under North Carolina General Statute Chapter 44A, a supplier or subcontractor who remains unpaid by a builder can file a claim of lien against your real estate. Collecting signed lien waivers with each draw proves that all materials and labor in prior phases have been paid in full, protecting your title.
Managing Cash Flow and Out-of-Pocket Expenses
Homeowners should be aware that interest-only payments are typically paid on the disbursed loan balance during construction. Upgrades chosen outside the original contract scope must generally be funded out-of-pocket as direct change orders, as banks rarely increase loan amounts mid-build.
Related service: Build on Your Lot · More in Build on Your Lot Learning Center
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