Understanding the Construction Loan Draw Process: What to Expect During Your Build
- Austin McKnight
- Apr 9
- 3 min read
Updated: Apr 18
Your Guide to the Construction Loan Draw Process and What Happens After Closing
You’ve chosen your builder. You’ve closed on your construction loan. Now what?
If you’re like most homebuyers, this is where the process gets a little fuzzy. You know your home is going to be built, but the steps between closing and move-in day often feel unclear. Whether you’re using a VA, USDA, FHA, or Conventional construction loan, the construction phase follows a similar path—and understanding it helps reduce surprises and delays.
Let’s walk through what to expect once your loan is closed and construction begins.
1. The Draw Process: Percentage-Based Funding
Unlike a traditional loan that pays out all at once, construction loans are disbursed in draws—payments made based on progress.
At PRMI, we use a line-item, percentage-of-completion draw system. Here’s how it works:
The builder provides a detailed cost breakdown across ~40 line items (foundation, framing, HVAC, cabinetry, etc.).
Draws can be requested at any point during the build.
An inspection confirms the percentage of completion for each line item.
The builder is paid based on what’s complete—not just the stage they’re in.
For most loans, we build in:
5 draws for site-built homes
3 draws for modular/manufactured homes
🔁 Need more flexibility? Additional draws can be requested and approved as needed.
2. What the Lender Reviews (and Doesn’t)
As the lender, we’re not on-site, managing the build, or involved in design or materials decisions. But we do play a critical role in confirming that work is progressing and funds are being used as intended.
Here’s what happens:
The builder submits a draw request, including what line items are ready for review.
A third-party inspector visits the site and assesses overall progress and completion percentages.
We compare the inspector’s report to the builder’s request and determine how much can be released.
The borrower signs off on each draw, giving full authorization before funds are disbursed.
🛠️ We don’t check every nail and tile—but we do look to see if the work appears consistent with the builder’s request and that the percentage of completion makes sense.
3. Communication is Key
Clear communication between borrower, builder, and lender makes a huge difference during construction.
Ask your builder:
How often will you receive updates?
Will there be walk-throughs at key stages?
Do they use a platform like BuilderTrend to manage selections and budgets?
💬 Construction moves fast. A missed update or unclear change can cost time and money. Make sure you and your builder are aligned early on.
4. Change Orders, Overages & Contingency
Changes during construction are common—upgrades, tweaks to the plan, or unexpected conditions on-site.
Important things to know:
All change orders must be documented and signed.
Any cost increases after closing are not financed—they must be paid out-of-pocket.
If you included a contingency in the loan, that can help cover some changes (if approved).
💡 Reminder: You can’t increase your loan after closing, but any unused funds can be applied toward principal reduction.
5. Final Steps: Inspections & Closeout
Once construction is complete, the final steps begin:
A final inspection is performed to confirm completion.
For VA or USDA loans, the appraiser completes a Form 1004D or equivalent.
The Certificate of Occupancy (CO) is issued.
The final draw is requested and approved.
The loan converts to permanent financing.
Most builders will also walk through the home with you, creating a punch list to address minor issues before final move-in.
How You Can Help Keep Things on Track
✅ Review your builder’s draw schedule and stay engaged
✅ Communicate frequently and clearly
✅ Understand your contract and change order policy
✅ Plan for delays (weather, labor shortages, material backorders)
✅ Know that you're the primary enforcer of your contract—not the lender
Final Thoughts on the Construction Phase
The construction phase isn’t just about building—it’s about coordination, timing, and making informed decisions. At PRMI, we support VA, USDA, FHA, and Conventional construction loans and work closely with you to ensure your funding stays on track throughout the process.
While we’re not the project manager or onsite contractor, we review every draw request, coordinate inspections, and require your sign-off before any funds are released. Our job is to make sure the financial side of your build runs as smoothly as possible.
Have questions about how the construction loan draw process works? Curious what to expect during your build? We’re happy to walk you through it.
