Construction mortgage

Instead of one lump sum, a construction mortgage releases money in draws as the build hits milestones — foundation, lock-up, drywall, completion — each confirmed by an inspection or appraisal. You typically pay interest only on the funds drawn so far during the build.

Lenders want the full picture up front: fixed-price builder contract, permits, plans, and budget, plus contingency for overruns. Draw timing and holdbacks (lien-act holdbacks) can squeeze cash flow, so coordinating the schedule with your builder is critical.

On completion the construction loan converts to a standard mortgage at regular rates. It's distinct from purchase-plus-improvements, which finances renovations on an existing home rather than a ground-up build.