Unlike a traditional purchase loan where you get all the money at once, construction loans release funds in stages called “draws.” This system protects everyone and keeps projects moving forward.
Understanding how this process works can save you thousands in interest charges and prevent costly delays. Here’s everything you need to know about accessing your construction funds when you need them.
A typical draw schedule might look like:
Draw 1 (Closing): 20% for land purchase or initial site work
Draw 2 (Foundation): 20% when foundation is complete
Draw 3 (Framing): 20% when framed and roofed
Draw 4 (Mechanicals): 20% after plumbing, electrical, and HVAC rough-in
Draw 5 (Completion): 20% upon final inspection and certificate of occupancy
Before each draw, an inspector verifies the work is complete. This might feel like oversight, but it actually protects you from contractors who want payment before finishing their work. It keeps everyone honest and projects on schedule.
Interest Rates and Costs: What to Expect
Speed has value. If you can start construction three months earlier with hard money, you might finish and sell before a bank-funded competitor even breaks ground. In rising markets, those extra months can mean tens of thousands in additional profit.
Opportunity has value. Maybe you found an incredible lot but you can’t wait on bank financing. Hard money may be your only way to close in time. The higher interest rate is a small price for accessing deals others can’t touch.
Flexibility has value. Your construction budget needs adjustment? You want to add another unit? The market shifted and you want to change from sale to rental? Hard money lenders can adapt. Banks would require starting the entire application over.
Remember, construction loans are typically short-term — 6 to 18 months. You’re not paying these rates for 30 years. Factor the cost into your project budget like any other expense.
Ready to break ground on your next project?
At Little City Investments, we specialize in construction loans that close fast and fund throughout your build. We understand construction and can structure the right financing solution. Start here to get financing with Little City for your Texas real estate investments.