19 May 2021

Funds to Complete: Construction Loans Explained

“Cost to complete” is a home loan providers jargon for the borrower pays their funds direct to the builder in the initial stages & the lender provides proceeds of the loan to complete (finish) the construction,

If you have bought a property and now need to build a home, you can qualify for a construction loan.


Basics of a construction home loan

During the different construction phases, you will receive instalments of the loan’s amount. Instead of giving the loan to you directly, the lender will pay the contractor as each stage of the project is completed. The stages for new builds are:

  • Slab down, which covers the cost of the foundation work
  • Frame stage, which covers the cost of the roofing, frames and windows
  • Lockup, which covers the cost of putting up the outside walls and installing the doors and windows
  • Fixing, which covers the cost of the installation of fittings and internal fixtures like plumbing, electricity and cupboards
  • Completion, which covers the final payment and final touches such as paint


The benefit of a construction home loan versus using a regular home loan to build a house is that you only pay interest on the parts of the loan you use. If the final stage of the project is complete, and the bank did not have to pay out phases of the loan, you do not have to pay interest on the whole loan. 


Approval process

In addition to the standard documentation needed for home loans, such as proof of income and expense reports, you will also need to provide any permits and plans, the building contract with the fixed-price and any insurance that you have. The lender will then have a property appraiser assess the potential value of your property. Banks require at least a 5% deposit on construction loans, but if you pay more than 20%, you won’t have to pay lender’s mortgage insurance. As the construction work progresses, your builder may have to send an invoice to the lender.


Before applying for a construction loan, you must discuss the project with a mortgage broker. They can help you understand what lenders require in their applications and may be able to help you determine other alternatives. Mortgage House knows the ins and outs of homeownership and the costs associated with it. We can help you find a construction loan that reflects your budget. 

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