Construction budgets and draw schedules

Construction financing is less about a single number and more about a schedule. The budget tells you what the project costs. The draw schedule tells you when the money leaves the lender. Interest follows the second one.

The budget structure

A workable construction budget has four parts:

• Hard costs: materials and labor, itemized by trade
• Soft costs: architecture, engineering, permits, fees, insurance, legal
• Contingency: a percentage held against the unexpected
• Financing costs: points, interest, and lender fees

Soft costs are where inexperienced budgets underperform. Permits and professional fees are predictable, but they are frequently omitted from a first draft.

What a draw schedule does

A draw schedule releases funds in stages tied to completed work — foundation, framing, roofing, rough trades, finishes. Typically each draw is inspected before release.

This matters for two reasons. First, you fund construction progressively rather than all at once. Second, interest accrues only on what has been drawn, so a front-loaded schedule costs more early than a back-loaded one.

Modeling draw interest

A reasonable approach is to model the schedule month by month:

• Start with the initial advance at closing
• Add each draw in the month it is expected
• Charge interest on the outstanding balance for that month
• Sum the interest across the build

An average-balance shortcut is acceptable for a rough estimate, but label it as an approximation. It will not capture the effect of a delayed start.

Land is not cash

If you already own the land, its equity is part of your position in the project — but it is not cash you wrote a check for. Keep the two separate. Counting land value as a cash contribution understates your actual cash requirement, and counting the land cost again after contributing the land double-counts it.

Reserves versus costs

A funded interest reserve is money set aside to pay interest during the build. It is different from additional financing cost. If the reserve is financed, it increases the loan balance; if it is funded from your own cash, it is part of your contribution. Label it clearly either way.

The Construction Analyzer models draws, reserve needs, land equity, and cash contribution separately so each item appears once.