I've applied Water Based Varathane Ultimate Polyurethane to some desktops. I intend to apply 3 coats. The instructions say drying time is 2 hours. Can I sand the finish after 2 hours or do I have to wait 24 hours? The location is very dry and warm.
When can I sand water based polyurethane?
When it's dry enough.
Product directions give us typical/average drying and curing times for finishes but they're just that, typical. Higher and lower humidity, high and low temps and other factors determine how quickly something actually dries.
So in your case, given the conditions you describe, two hours could easily be sufficient. But bear the following details in mind, especially because of the other factors which often throw finishers a curve ball.
How to tell
In short, a finish is hard enough to sand when it produces a dry white powder on the abrasive.
A finish that's sandable will feel dry and hard and not the least bit sticky. But those alone aren't indicators that drying has progressed far enough, the production of a dry white or light-coloured powder during sanding is.
This stage will usually also mean it doesn't easily clog paper, form corns or become sticky as a result of the sanding operation1.
But do I need to sand?
This is one of the key questions when you're applying a film finish, these days it's too easy to get the impression that there's an actual need to sand thoroughly between coats.
Sand just enough to accomplish what you set out to do and no more. It's very easy, especially with power sanding, to get carried away and sand more than necessary.
One of the only reasons to sand between coats is to de-nib the surface so that's what you're doing, removing dust nibs. Nothing else. You're not trying to produce a uniform scratch pattern over the whole surface2. And de-nibbing doesn't even have to involve sanding at all — it can be done by careful scraping with a razorblade, rubbing with nylon scrubbies or Scotch-Brite, steel wool3 and even the rough side of brown paper.
And if you are sanding to help produce a flat surface you still might not need to sand between every coat, bar sanding lightly after the first coat (which often raises the grain to some degree) all sanding can be done in a single step at the end prior to buffing/polishing to restore shine.
1 But do be aware that power sanding (as well as fast hand sanding) can general heat that can start these processes off when otherwise the finish is ready for light sanding. In general sanding between coats should exclusively be a hand-sanding operation, and done slowly, although this is frequently not the case these days.
2 Doing this when not necessary wastes time and wastes finish since you're needlessly removing some from the surface.
3 Steel wool is generally best avoided on waterbased finishes because of the potential for a spec of steel to remain behind and rust.