I was watching a video recently from someone who builds new construction properties, and one number stopped me cold.
He said he spent $186,000 in his very first month of construction. And almost immediately, $1,400 of that was just — gone. Interest. On money he’d already drawn but hadn’t fully spent yet.
Over nine months of construction, that adds up to over $12,000 in interest that didn’t have to happen.
The strategy he used to avoid it is called the Non-Dutch draw method. And once you understand it, you’ll never look at a construction loan the same way again.
First: How Construction Loans Actually Work
Unlike a regular mortgage where you get all the money at once, construction loans disburse in stages. You don’t get $500,000 on day one — you get it in chunks as the project progresses.
Construction loans are short-term loans that help pay for building a home in stages instead of all at once. During construction, you only have to pay interest for 12 to 18 months, after which the loan converts to a regular mortgage. LendSure Home Loans
Each time you need money, you submit a draw request to the lender. The lender then sends out an inspector to verify the work is actually done before releasing the funds.
Lenders typically hire a third party to conduct inspections for draw requests. Once the third party inspects the completed work, they submit a report with a recommendation on whether to fund the draw. Steve Abo
That inspection process takes 1-2 weeks. And here’s the critical part — the moment the money hits your account, the interest clock starts.
Dutch vs Non-Dutch: What’s the Difference?
This is where most people’s eyes glaze over, so I’m going to make it very simple.
Dutch interest (the bad one):
Dutch interest, also known as “full boat” interest, is a type of interest structure where the borrower pays interest on the full loan amount from the day the loan is issued, regardless of how much has actually been disbursed or used. Facebook
Example: You have a $1,000,000 construction loan. You’ve only drawn $250,000 so far. With Dutch interest, you’re paying interest on the full million. All of it. Even the $750,000 sitting untouched.
In a Dutch interest scenario on a $1 million loan at 12% interest for 12 months, you’d pay $120,000 in interest — whether you use the full amount upfront or in stages. Facebook
Non-Dutch interest (the good one, and what most lenders use now):
Non-Dutch interest requires the borrower to only pay interest on the amount of the loan that has actually been disbursed. As additional funds are drawn, you start paying interest on the new total, but only for the duration those funds are used. Facebook
Same $1 million loan, same 12% rate. If $250,000 is disbursed each quarter, your total interest paid would be $75,000 instead of $120,000 — that’s nearly $45,000 saved just by choosing a non-Dutch structure. Facebook
Most construction loans today are Non-Dutch. But here’s what that video taught me — even with a Non-Dutch loan, the timing of your draws still matters enormously.
The Draw Timing Strategy: Where the Real Savings Are
Here’s the insight that actually got me:
Even on a Non-Dutch loan, you start paying interest the moment you draw. So if you draw $186,000 and it takes you two weeks to actually spend it — you’re paying interest on money sitting in your bank account doing nothing.
The strategy is simple but requires discipline:
Step 1: Use your own cash to pay contractors and suppliers first.
Step 2: Let the work pile up — don’t submit a draw request every time you write a check.
Step 3: When you’ve spent enough of your own cash that it makes sense, submit a draw request to get reimbursed.
Step 4: The lender sends an inspector, verifies the completed work, approves the draw.
Step 5: Money comes back to you — and only now does interest start on that amount.
By pushing the draw request as late as possible, you’re minimizing the number of days you’re paying interest on that money. Do this consistently across a 9-month build, and you can save $12,000 or more.
The catch? You need enough cash on hand to float the costs while you wait for reimbursement. This strategy only works if you have working capital. If you’re living draw-to-draw, you don’t have the flexibility to delay.
The Inspector: Why the Bank Isn’t Just Taking Your Word for It
This part surprised me when I first learned it, so I want to make sure it’s clear.
You cannot just call the lender and say “I need $50,000, the framing is done.” They will not wire you money based on your word alone.
Lenders hire a third party to conduct inspections for draw requests. The inspector reviews the completed work and submits a report with a recommendation on whether to fund the draw. The lender then typically collects either a lien release or a conditional lien release for the completed work before approving funds. Steve Abo
The inspector is evaluating:
- What percentage of the work is complete
- Whether it matches what you said in the draw request
- Whether the quality meets standards
- Photo documentation of the progress
This is actually a good thing for investors — it keeps your GC accountable. If you have a contractor who’s cutting corners or overstating progress, the inspector catches it before more money flows to them.
But it also means you need to plan around a 1-2 week delay between submitting a draw request and receiving funds. That’s 1-2 weeks of your cash floating before you get reimbursed — which is exactly why having working capital matters.
What Construction Loan Rates Look Like in 2026
This context matters when you’re calculating how much the draw timing strategy actually saves you.
Construction loan rates currently range from 7.5% to 9% — about 1 to 2 percentage points higher than conventional mortgage rates. LendSure Home Loans
At 9% interest on $186,000, that’s roughly $1,400 per month. Delay drawing that money by 30 days and you save $1,400. Simple as that.
Over a typical 9-month construction timeline, with multiple draws at various stages, those monthly savings compound. The video creator calculated $12,000 in savings over his build — and that’s at a rate that’s consistent with today’s market.
What to Ask Your Lender Before You Sign
Not all lenders handle draws the same way. Before you commit to any construction loan, ask these questions:
- Is this a Dutch or Non-Dutch loan? If it’s Dutch, walk away or negotiate hard. Dutch interest is more common with private lenders than with banks, so be aware when working with hard money sources. Facebook
- How long does the draw inspection process take? 1 week vs 3 weeks is a meaningful difference in your cash flow planning.
- How many draws am I allowed? Some lenders limit the number of draws per project. More draws = more flexibility in timing.
- Is there a fee per draw request? Some lenders charge $150-$300 per inspection. Factor this into your calculation.
- Can I submit draws on my own schedule, or is it tied to milestones? Milestone-based draws give you less control over timing.
The Bigger Picture
The Non-Dutch draw strategy isn’t complicated. It’s just cash flow management — spend your own money first, get reimbursed later, and minimize the days you’re paying interest on borrowed funds.
But it requires two things most beginner investors don’t think about before they start: enough working capital to float costs between draws, and a clear understanding of how your lender’s inspection and disbursement process works.
Know those two things going in, and you’ll build cheaper than most people who take on the exact same loan.
Use the New Construction ROI Calculator below to model your full construction loan cost — including interest by draw stage.