I am thinking about building a house on a piece of land that is for sale.

If I was to get a loan in the amount of $200k, would the funds be released to me in total? If they are not released in total, are there building benchmarks that must be met?

How does it work?
Do all lenders issue new construction loans with "draws?" I like the idea of the draw because it will keep the contractor on task.

A lender may provide a straight land loan to you, which would go to the seller as part of the purchase price, with the balance of the purchase price coming from your cash injection. Thereafter, you might take out the land loan with a construction loan - the initial draw on the construction loan would pay off the land loan, and the rest of the loan would finance construction and finance costs. Alternatively, a lender could provide you with a single close loan, which would fund both the acquisition and the construction. Upon completion, the construction loan would be paid off with permanent financing, i.e., a regular home loan.

On a construction loan, generally the funds are not released directly to you. As work is completed (e.g., foundation poured, framing erected, plumbing installed), the general contractor will provide documentation to the lender in the form of invoices from sub-contractors, and a site inspector will go out to verify the completed work. Once verified, funds are released to pay off the subs for work completed. If the amount requested is outside the construction budget, there may be a cut-back in the loan draw. If, for example, there was $10,000 in the budget for windows, and a $12,000 loan draw request was submitted because more expensive windows were installed than were originally in the loan budget, then the draw amount would be reduced to $10,000 and the difference would have to be paid by the home-owner. Larger developers generally work within a given construction budget and funds are released on a percentage completion basis. You always want to have a sufficient contingency reserve because nothing ever goes exactly according to plan.

I'd recommend doing some background research to see what you're getting into. There may be entitlement issues (like zoning or easements), you want to make sure you've got access to roads & utilities, and you want to get a really good general contractor for the construction. Look into the different types of contracts (fixed price, cost-plus, etc.) to make sure you understand what happens in the case of a cost overrun.

Building your own home can be rewarding, but you really don't want to start educating yourself about the process half-way through. Good luck.