13 Oct 2021

Funds to Complete: Construction Loans Explained

Construction Loans

Funds to complete is a calculation done by your lender when you apply for a construction loan. After they review all your project details, such as the contract, contractor quotes, and the cost of your land, they will calculate how large your loan needs to be to ensure the cost of your project is covered. Most lenders approve you for a construction loan that is higher than their estimate. These “funds to complete” are to ensure you have a buffer in case problems arise during construction. 

What is a Construction Loan?

If you are renovating your current home or want to build a new one, you can apply for a construction home loan. Construction loan applications are similar to standard home loans and also require the same documentation. However, to determine how large of a loan you need, you will also need to provide work quotes and a copy of the contract. The contract should include the materials, labor costs, estimated final cost, and how long the project should take. 

How Do Construction Loans Work?

Unlike standard home loans, construction loans use a drawdown payment method. After each stage of the construction is completed, your contractor will request payment, you will notify your lender, and your lender will pay your contractor directly. Your lender may request verification or invoices from your contractor to prove the work was completed. The drawdown payments are typically released after the following stages:

  • Slab down, which is when the foundation is poured.
  • Frame Stage, which is when the building frames are raised and the roofing is placed.
  • Lockup, which is when the outside walls are completed and the doors and windows are installed.
  • Fixing, which is when the fittings and internal plumbing, electricity, cabinets, cupboards, and counters are installed. 
  • Completion, which is when the project is finished. 

When you need a construction loan, the brokers at Mortgage House can help you find the right option for you. We can help you fill out and strengthen your application and will ensure that your loan not only covers the entire project but also includes additional funds to complete.

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