31 May 2021

How Does a Construction Home Loan Work and What are “Funds to Complete?”

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You can apply for a construction home loan if you are renovating your current home or building a new home. The application for construction loans requires the same documentation you need for standard home loans. However, to assess the loan amount, lenders also require you to provide any additional work quotes and a copy of the contract outlining materials, labour costs, length of the project and the estimated final project cost.


How do they work?

Construction home loans use a progressive drawdown payment method. After different construction phases are completed, your contractor will request payment and the lender will release payment directly to the contractor. Traditionally, payments are released after the following stages:

  • Slab down: after the foundation is poured
  • Frame stage: after the roofing and building frames are raised
  • Lockup: after the outside walls are finished and the doors and windows are installed
  • Fixing: after the fittings and internal fixtures, such as plumbing, electricity, cupboards, cabinets and counters are installed
  • Completion: after the project is finished and final touches are complete

What are the funds to complete?

Funds to complete is a calculation assessed by your home loan lender after reviewing all your project details, including the contract, other quotes, and your land cost. This formula is designed to calculate how much personal cash is required from the customer to commit to the building project in the earlier stages. Your mortgage provider then completes the building project. Hence: “funds to complete”.


Mortgage House and our team of brokers can help you find a construction loan that is right for you. We can help you with your application and ensure that your loan will cover the cost of your project without having hidden fees. 


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