How do draws work on a hard money construction loan?

The short answer, as of October 2026

• At closing: the lender advances $20,000 toward the lot and you bring $60,000 plus closing costs.
• During the build: the $320,000 budget is released in draws after each inspection, on a schedule set from your contractor’s budget.
• Interest: only on drawn money, $196 a month at the start, $3,326 fully drawn.
• With a Financed Interest Reserve, $17,100 inside the loan makes the interest payments while you build.

Capital Kings LLC is a broker, not a lender. We compare every file across 400+ lenders and send the term sheet with every fee on it before you sign.

Every dollar, line by line

An $80,000 lot and a $320,000 build with a $560,000 finished value, 745 credit, first build. The real term sheet, both structures:

Lower FeesFinanced Interest Reserve

Open the full term sheet →

Cash to close$79,257

Proof of funds to show$147,215

Where the $79,257 goes

• Land down paymentEquity$60,000
• Appraisal feeAppraiser$550
• Prepaid interestLender$96
• Origination and lender feesLender$8,795
• Broker feeBroker$3,400
• Closing / titleTitle co$4,016
• Builder’s risk insurance (estimate)Insurer$2,400

At closing the lender advances $20,000 toward the lot; the $320,000 build money waits in the loan and goes out in draws. Proof of funds adds $48,000 to start the build and $19,958 of interest. The gold broker line is the only money Capital Kings earns.

A sample sheet for a made-up borrower, built the same way yours is. Yours takes about five minutes and doesn’t pull your credit.

Compare the options

The two structures fund the lot and the build differently. Lower Fees funds the whole build in draws; the Financed Interest Reserve funds more of the lot and carries the interest, and leaves part of the build to you.

Who pays for what, and when

$80,000 lot, $320,000 build, $560,000 finished value, 745 credit, first build with a general contractor. The build money is released in draws after each inspection; the lender sets the schedule from your contractor’s budget. Rates as of October 2026.

Interest is charged on what has been drawn

Interest-only, charged on the money the lender has sent out, not the full loan. The first months cost the least because only the lot advance is out. Rates as of October 2026.

Where the numbers come from

A draw is a payment from the loan to you or your contractor for work that is done. The contractor finishes a stage (foundation, framing, dry-in, finishes), you request the draw, an inspector confirms the work, and the lender releases that money. The lender sets the schedule from your contractor’s budget, so an itemized budget gets approved and funded faster.

Because the build money goes out over months, interest grows with it. On Lower Fees at 11.74%, interest starts at about $196 a month on the $20,000 lot advance and reaches $3,326 when the full $340,000 is out. Six months of interest is estimated at $19,958, and the lender wants to see it in your account along with $48,000 to start the build.

The Financed Interest Reserve works differently. The loan is bigger ($360,000), $17,100 of it is set aside to make the interest payments, and it advances more toward the lot ($56,000, against $20,000). It funds less of the build, so you cover $33,100 of the build before the first draw.

Fix and flip loans work the same way on a smaller scale: the purchase funds at closing and the rehab is released in draws after inspection, with interest only on what has been drawn.

Four things to check

• Itemize the budget.Draws follow the line items. A lump-sum budget slows the first draw.
• Line up the first stage.The first draw only comes after work is done, so plan how the contractor starts.
• Keep proof of funds in the account.The lender checks $48,000 to start the build and $19,958 of interest on top of cash to close.
• Ask how fast draws fund.Draw turnaround and the inspection fee are on your term sheet before you sign.

Straight answers