HOW CONSTRUCTION MORTGAGES WORK

Construction mortgages operate very differently from standard home purchase financing. Instead of receiving all the funds on closing day, the money is released in stages as the build progresses — ensuring the project stays on track and properly verified throughout.

Here’s how construction financing is structured and what to expect 👇

1️⃣ Construction funds are released in stages — not all at once

Unlike traditional mortgages, construction financing is advanced based on build progress.

✔️ lender releases funds at key milestones

✔️ progress is confirmed through inspections

✔️ each stage requires an updated appraisal

This protects both the homeowner and the lender throughout the project.

2️⃣ Optional first advance before construction begins

For uninsured mortgages, an initial advance may be available before construction starts.

✔️ up to 65% of the land value

✔️ helps fund site preparation and early costs

✔️ reduces upfront cash pressure

This is available only when the project meets specific lender criteria.

3️⃣ Early advance available for insured mortgages once foundation is complete

For insured construction mortgages, the first advance occurs after 15% completion.

✔️ excavation finished

✔️ foundation poured

✔️ site ready for structural framing

This stage ensures the project is properly established before funds are released.

4️⃣ First major advance at 40% completion

This milestone is met when the structure is fully weather-protected.

✔️ roof installed

✔️ windows and exterior sealed

✔️ property secured

This stage allows the build to continue safely in all seasons.

5️⃣ Second advance at 65% completion

This occurs once core interior systems are finished.

✔️ plumbing completed

✔️ drywall installed

✔️ furnace in place

At this stage, essential mechanical systems are confirmed by the appraiser.

6️⃣ Third advance at 85% completion

The home begins to take final shape.

✔️ kitchen cabinets installed

✔️ bathrooms complete

✔️ doors and trim hung

This stage reflects a nearly finished interior ready for final touches.

7️⃣ Final advance at 100% completion

Once the home is fully finished and passes all final inspections, the last portion of funds is released.

✔️ all construction complete

✔️ occupancy-ready

✔️ appraiser confirms completion

At this point, the mortgage converts to a standard loan structure.

💬 Final Thought

Construction mortgages require careful planning, staged funding, and ongoing inspections — but they make it possible to build a home from the ground up with structured financing. Understanding the advance schedule helps homeowners stay organized and financially prepared throughout the build.

For a full breakdown of construction-mortgage lender options and qualification requirements, send The Frontline Mortgage Group a message anytime.