What Not to Do When Your Builder Requests a Draw

What Construction Loan Monitoring Actually Does

Construction loan monitoring is an independent inspection service that confirms your builder has completed the work they're claiming payment for before the bank releases funds. Your lender arranges this at each stage of the build, typically through a quantity surveyor or building inspector who visits the site, checks progress against the contract, and issues a report confirming the percentage complete.

Consider a couple building in North Lambton who received an invoice for roof completion. The builder had installed the frame and battens but hadn't laid a single tile. The progress inspection caught this before the bank released $42,000. Without monitoring, that payment would have gone through based on the invoice alone, leaving the couple paying interest on work that didn't exist yet.

Most lenders will only release funds after the inspection report confirms the stage is complete. You'll usually pay a Progressive Drawing Fee at settlement, anywhere from $800 to $1,500 depending on the lender and how many inspections your build requires. This covers all progress inspections throughout the construction period. The bank only charges interest on the amount drawn down, so if your total loan is $550,000 but only $180,000 has been released for land and initial works, you're paying interest on $180,000, not the full amount.

The progress payment schedule in your fixed price building contract sets out when payments are due. Standard stages include slab down, frame up, lockup, fixing, and practical completion, though this varies between builders and states. Your builder invoices you when they believe a stage is complete, you submit the invoice to the lender, the lender arranges the inspection, and if the work checks out, the funds go to the builder. If the inspection finds the stage isn't complete, the payment is held until the builder finishes the outstanding work.

Why Builders Push Back on Inspection Reports

Builders operate on thin margins and rely on progress payments to cover materials and pay sub-contractors like plumbers and electricians. When an inspection report delays a payment, it can create genuine cash flow pressure, particularly for smaller builders managing multiple sites.

That pressure sometimes leads to builders asking owners to waive the inspection or request early release. In our experience, this request usually appears around the fixing stage when internal trades are working but the visual progress is less obvious than earlier stages. The builder might say the delay is holding up the schedule or that the inspector is being unreasonable.

The problem is that once funds are released, you lose leverage. If the builder doesn't finish that stage properly, your only recourse is legal action or lodging a complaint with the building regulator, both of which take months and won't get your build finished. The inspection process exists because building contracts favour the builder. You're paying for work in advance of completion, so verification is the only protection you have that the work exists and meets the contract standard.

A registered builder working on a fixed price contract should have no issue with independent verification. It protects them too by confirming they've met their obligations before payment. If your builder is consistently at odds with inspection reports, that's a signal worth paying attention to, not a reason to bypass the process.

How the Progress Payment Process Works in Practice

Your builder submits a payment claim when they believe a stage is complete. You forward that claim to your broker or lender, usually by email or through the lender's online portal. The lender arranges an inspection within a few days, the inspector visits the site, and the report comes back within 24 to 48 hours in most cases.

If the report confirms the stage is complete, the lender releases the funds directly to the builder's account. If the stage is only partially complete, the report will note what's missing and what percentage of the stage has been finished. Some lenders will release a partial payment based on that percentage, others will hold the full amount until the stage is done. Your construction loan contract with the lender sets out how partial payments are handled.

The construction draw schedule is usually structured around five or six payments, though owner builder finance or custom builds with cost plus contracts may have more frequent drawdowns. A typical schedule releases around 10% at slab, 20% at frame, 25% at lockup, 30% at fixing, and 15% at completion, though this varies depending on your contract and lender. Each payment is triggered by the builder's invoice and confirmed by inspection.

You'll receive a copy of each inspection report. Read them. They'll tell you if there are defects, incomplete work, or variations from the council plans. If the same issues appear in multiple reports, that's a pattern that needs addressing with your builder before you're too far into the build.

What Happens When an Inspection Fails

The builder receives a copy of the report and knows exactly what needs completing before the payment is released. In most cases, they'll finish the outstanding work within a week and request a re-inspection. Some lenders include one re-inspection per stage in the original fee, others charge an additional $150 to $200.

Delays at this point are frustrating but they're protecting you from paying for incomplete work. The alternative is releasing the payment and hoping the builder comes back to finish the stage, which becomes difficult to enforce once they've been paid and moved on to the next stage.

If your builder repeatedly fails inspections or disputes reports that clearly show incomplete work, contact your broker and consider getting an independent building consultant to review progress. This costs money but it's cheaper than discovering major defects after practical completion when your leverage is gone. Mortgage By Design works with brokers who understand construction finance and can connect you with the right professionals if issues emerge during the build.

The One Thing You Shouldn't Do

Do not pay your builder ahead of the verified progress payment schedule, even if they're asking nicely or claiming financial hardship. Your contract sets out when payments are due and what triggers them. Paying early or outside the schedule removes the one piece of leverage you have if something goes wrong.

If your builder is struggling financially to the point where they can't wait for a legitimate progress payment, that's a solvency issue that needs addressing with a lawyer, not a funding issue you can solve by advancing money. Builders who are managing cash flow properly don't need payments ahead of schedule. Those who do are either undercapitalised, overcommitted across too many jobs, or both.

Your lender won't release funds without an inspection report. If you pay the builder directly using your own cash, you'll still need to reimburse yourself from the construction loan at some point, and the lender will still require an inspection before releasing those funds. So you end up paying twice for the same stage or covering work the lender won't fund because it doesn't align with the approved schedule.

When to Call It

If you're in North Lambton and your build isn't progressing as expected, or your builder is pushing back hard against the monitoring process, call one of our team or book an appointment at a time that works for you. We work with lenders who understand quality construction and we'll help you sort out what's reasonable delay and what's a red flag that needs acting on now.

Frequently Asked Questions