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FAQs

If I am arranging a construction loan, why does the lender have to hold back funds?

Construction loans are more difficult for a lender than a typical home purchase or refinance because of the inherent risks associated with lending on a home that is under construction and significantly less marketable than a finished home. Lenders often require more capital down because at each stage, the lender protects itself and will lend based only on the value of the home at that time, not its future value. Lenders therefore do draws of funds and require confirmation that contractors are paid as construction proceeds, to ensure that no construction liens can be registered in priority to the mortgage. The construction lien holdback is 10% of the price of services or materials supplied pursuant to the contract, until the time for preserving liens has expired, any liens are satisfied or discharged, or payment is made into court.

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Telephone: 905.451.3040 Fax: 905.451.5058 Email: lls@lawrences.com

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