How Construction Loans and Draw Schedules Work for a Custom Home
A construction loan pays for your home in stages rather than all at once. Your lender releases money in a series of draws as the build reaches defined milestones, and you typically pay interest only on what has been drawn so far. When construction is complete, the loan converts to, or is paid off by, a standard mortgage.
That structure protects everyone involved, but it also ties your financing to your construction schedule. Understanding it early keeps both on track.
How a construction loan differs from a mortgage
A mortgage funds a finished house that an appraiser can walk through. A construction loan funds a house that does not exist yet, so the lender underwrites you, your builder and your plans together. Expect a review of your builder's credentials, a full line-item budget, plans and specifications, and an appraisal based on the home as designed. Down payment requirements are often higher than for a standard mortgage, and many lenders want a contingency reserve in the budget.
One close or two?
Construction-to-permanent (one-time close). One application and one closing. The loan converts to a permanent mortgage when the home is finished, so your long-term terms are set up front.
Construction-only (two-time close). A short-term loan covers the build, then you close separately on a mortgage at the end. You gain flexibility to shop for permanent financing later, in exchange for a second qualification and a second set of closing costs.
The right fit depends on your rate outlook, your cash position and how much paperwork you want mid-build. Your lender is the right person to walk you through that comparison.
How the draw schedule works
The draw schedule ties payments to progress. A typical sequence releases funds at milestones such as foundation, framing, mechanical rough-ins, drywall and completion, the same construction stages you will see on site. Before each draw, the lender usually sends an inspector to confirm the work is in place, and many also require lien waivers showing trades and suppliers have been paid.
During construction, your monthly payment is generally interest only, calculated on the amount drawn to date. It starts small and grows along with the house.
Where financing can slow a build
Draw delays become schedule delays. The usual causes are an inspection that cannot be booked for a week, missing paperwork, or a change order that pushes costs past the approved budget. Each is easier to prevent than to fix, which is why early selections and budget decisions protect your timeline as much as your budget.
How we work with your lender
Not every lender is experienced with construction loans, and one who rarely handles draws can slow a build. We are happy to recommend local lenders who know construction lending well. At StarPointe Homes, we prepare the line-item budget and construction schedule your lender needs during pre-construction, then coordinate draw requests and inspections with them throughout the build. You stay informed through your client portal without having to chase paperwork in between.
Planning a build and sorting out financing? Contact StarPointe Homes to start with a planning conversation, not a sales pitch.
