When a lender advances you a construction mortgage, he is giving you a line of credit that you can draw down up to the full amount. You are not obligated to use the maximum amount and you cannot draw past the maximum amount. You can advance the funds as the construction progress, such as foundation, bringing up the walls, roofing, finishing, and so on. The progress advance basis on which a construction mortgage is given ensures that the builder does not use the money for other purposes, protecting the lender. If you intend to buy the land you want to build on, the lender will avail the first draw to assist you to buy the lot. The lender has a vested interest in the construction since the building will be the collateral. To ensure that the construction is being done to standard, the lender engages a building inspector to ensure the percentages that the construction has progressed. The borrower is the one who meets the inspection costs. If you already own the land, the typical draw is as follows:
• The first draw is 15% to complete excavation and the foundation.
• The second draw is 25% to do everything up to the roofing and weather protection.
• The third draw is 25% to complete drywall/plaster, furnace installation, exterior wall cladding, plumbing, and initial wiring.
• The fourth draw is 20% to complete doors, kitchen cupboards installations, and the bathroom. The fifth draw is 15% to complete exterior and seasonal work.