Capital Kings LLC

How do draws work on a hard money construction loan?

At closing the lender funds part of the lot, $20,000 on an $80,000 lot, and holds the $320,000 build budget back. As your contractor finishes each stage, an inspector checks the work and the lender releases that stage’s money. Interest is charged only on what has been drawn: about $196 a month at closing and $3,326 once the whole build is out, at 11.74%.

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Reviewed by Micah Foster, Founder & CEO · October 2026

Rates as of October 2026

$80,000 lot, $320,000 build, 745 credit, first build

Funded at closing, toward the lot

$20,000

Build money, released in draws$320,000
Monthly interest at closing$196

The deal, in pictures

How the build money moves

1Closing
The lender pays $20,000 toward the lot.
2Build a phase
Your contractor does the work. You front it until it is inspected.
3Inspection
The lender checks the finished work.
4Draw
The money for that phase is released.
5Repeat
Until all $320,000 of build money is out.

Interest is charged only on money already sent out, so the first months cost the least.

Capital Kings · capitalkings.co · rates as of October 2026

Reserves: Months of payments or interest you show in the bank. They stay in your account.
Draws: Rehab or build money released after each phase is finished and inspected.

The short answer, as of October 2026

The lender sets the draw schedule from your contractor’s budget, so an itemized budget funds faster.
Interest is charged 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:

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.

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How do the options compare?

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

	Lower Fees	Financed Interest Reserve
Lender, toward the lot at closing	$20,000	$56,000
You, toward the lot at closing	$60,000	$24,000
Lender, the build in draws	$320,000	$286,900
You, the build before the first draw	$0	$33,100
Interest reserve inside the loan	$0	$17,100
Total loan	$340,000	$360,000
Rate	11.74%	9.50%

$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

	Lower Fees	Financed Interest Reserve
Monthly interest at closing	$196	$443
Monthly interest, fully drawn	$3,326	$2,850
Six months of interest, estimated	$19,958	$17,100
Paid from	Your account	The interest reserve

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.

Price my deal →Size your build on the construction page Read the full draws guide Can I be my own builder?

How does it actually work?

A draw is a payment from the loan 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 Financed Interest Reserve works differently. The loan is bigger, part of it is set aside to make the interest payments, and it advances more toward the lot. 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.

What else do people ask?

How do draws work on a hard money construction loan?

The lender funds part of the lot at closing ($20,000 on an $80,000 lot in our example) and holds the build budget ($320,000) in the loan. After each stage is finished and inspected, the lender releases that stage’s money. You pay interest only on what has been drawn, $196 a month at closing and $3,326 fully drawn at 11.74%, as of October 2026.

Do I pay interest on the full construction loan from day one?

No. Interest is charged on the money that has been drawn. On our example that is about $196 a month at closing, rising to $3,326 once the whole build is out.

Who sets the draw schedule?

The lender, from your general contractor’s budget. Each draw follows an inspection of the finished work. An itemized budget gets approved and funded faster than a lump sum.

How much cash do I need before the first draw?

On Lower Fees, $60,000 toward the lot plus closing costs, $79,257 to close, and the lender wants to see $48,000 to start the build and $19,958 of interest in your account. With the Financed Interest Reserve, $49,173 to close and $33,100 of the build before the first draw.

What is an interest reserve on a construction loan?

Money set aside inside the loan to make the interest payments while you build. On our example the Financed Interest Reserve sets aside $17,100, so you are not paying interest out of pocket during the build.

Do fix and flip loans use draws too?

Yes. The purchase funds at closing and the rehab is released in draws after inspection, with interest only on what has been drawn.

Can I get a construction loan with no experience?

Yes, with a general contractor who has 5+ finished builds. Every number on this page is priced as a first build.

Do you pay a referral fee if I send you an investor?

Yes. We pay $500 to anyone who refers a real estate investor, realtors, wholesalers, contractors, other investors and lenders included, every time that investor closes a loan with us, for life. It comes out of our broker fee, so it never changes the investor’s terms. The details are on our referral program page.

Is Capital Kings the lender?

No. Capital Kings LLC is a broker, not a lender. We compare construction lenders from a network of 400+, and our broker fee is one labeled line on the term sheet before you sign.

Which questions have worked examples?

Founder & CEO

Micah Foster

Micah brokers fix and flip, DSCR and new construction loans for real estate investors across 38 states. He founded Capital Kings LLC to give investors a broker who compares the market on their behalf instead of pitching one lender’s product, and every term sheet is itemized down to the last fee.

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