Frankly, we are so glad we have a construction loan since the bank dictates when things get paid and what percentage.

I built a custom home and only financed 30% of the cost through a construction loan. Banks love this. It really reduces their risk exposure. It also reduced the cost of construction draws. In my case, I only needed one draw and a completion certificate.

Your real question is how to protect yourself? This starts with how you set up the contracts and who you select to build. Get that right and you are halfway home. I didn't want to be paying the bank interest any more than required. I wanted to get finished and go to permanent financing as fast as I could.

We have done one build, and are working on a second, where we did not obtain a construction loan (we basically used a line of credit loan, plus savings we already had). On our first, our builder was great and very trustworthy; my spouse was careful in reviewing invoices and payments. We were very relieved to not have a bank involved.

On our current build, we've talked through this with the builder, but are comfortable funding the draws. Again, we will review all draw requests, associated invoices, lien releases, etc. They did suggest to us that for a fee, we could work through an escrow company, if we wanted. You could look into that.

Thanks for the insights and experiences, they're helpful and I appreciate it.

get lien releases from the GC to ensure that he's paying HIS subs after YOU pay him - that way you can ensure that there are no hidden mechanic's liens on your home in the future.

We are owner/builder, so we are dealing with all the sub ourselves. I have experience as a GC and know all about preliminary notices and lien releases. It's a lot of work making sure that the subs pay their suppliers and keeping on top of things. I have had a few issues and some unpleasant conversations. I've also had subs send invoices for more than their contracted amount. Like I said, it's a fair amount of work to keep on top of it all.

I’m doing two additions - a 1000 sq foot master suite addition and a garage/bonus room addition. I am paying our of pocket, plus will use an HE line of credit at some point. The contractor and I signed a contract that dictates when payments are due. He has a good reputation in my town and I trust him. I am paying subcontractors for flooring and cabinets myself. I think the most important thing is to have a contract and work with someone who you trust.