Draw & Construction Mortgage Guide

What is a draw mortgage?

A draw mortgage, also known as a construction mortgage is a mortgage type used to finance the construction of a property. It allows for a home builder to draw on funds as needed to complete the build.

Normally in a draw mortgage, a builder will need to submit receipts and proof certain stages of a build are complete prior to getting the funds released by the lender.

Who needs a draw mortgage?

Normally a builder themself will use a draw mortgage, In some cases a buyer dealing with a home builder, will be asked to get a draw mortgage.

What are the disadvantages of a draw mortgage?

The downside of a draw mortgage is that you will have to start making payments on this as the draws are given out. Further to this, your builder could collect the money and not use it for your build.

What is the difference between a completion mortgage and a draw mortgage?

Most builders will accept a completion mortgage, this means you don’t pay until the house is complete and you are happy. In a draw mortgage, you will be paying in stages.

How does a draw mortgage work?

Stage 1: You will provide blueprint and quotes for all parts of the build

Stage 2: Permit applications, digging ground, foundation, framing. This can be the first draw. You will tell your bank or broker where you are at and submit receipts. They will send out an inspector, and then issue you a check

Stage 3: Lock Up: windows, garage doors, exterior doors, exterior finishing all installed. You use the same routine as before to get paid.

Stage 4: Drywall, paint, kitchen, bathrooms. All final items complete. At this point this is the final stage.

Normally this is the structure used, however some banks allow up to 6 draws!

I actually did this myself on a self build property (my house) and it worked out great! Don’t expect your money immediately and I would recommend asking for a draw, even before you need it.