The Real Estate Encyclopedia
Who Controls the Funds of the Construction Loan?
Category - Home Ownership Questions - Building Your Home FAQ's
The bank controls the funds of the construction loan and they do not pay out all at once. Borrowers usually get between five and ten “draws” which coincide with certain stages of construction such as:

  1. Pouring the foundation
  2. Framing
  3. Installing heating and cooling systems, wiring, and plumbing systems
  4. Installing cabinets, flooring and fixtures
  5. Finishing Work (paint, carpets, etc.)
  6. Construction-Only

    Construction loans are short-term loans and are converted or replaced by a standard mortgage once construction is finished. Some people get a construction loan to cover only the building of the home and reserve the option to shop for another lender and lower rate to cover their mortgage.

    The bank typically has an inspector visit the construction site periodically, to ensure the construction is meeting expectations before releasing additional funds. The builder requests a draw in advance of each new construction phase. The bank typically issues a checkbook, to allow the builder to pay contractors during each building phase. It is up to you to decide who holds the checkbook. In many cases, it is easiest to allow the builder to manage the funds, if you feel comfortable doing so.
Home Ownership Questions - Building Your Home FAQ's
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