"Can I Close on a Home Before the Work Is Finished? How a Completion Escrow Works"

It has rained for six straight days, the concrete truck has been rescheduled twice, and the driveway at the home you are buying is still packed gravel. Closing is next Thursday. Your lease is up at the end of the month, the movers are booked, and your rate lock runs out the week after. The builder says two more weeks, maybe three.

Yes. On a conventional loan under Freddie Mac's rules, your lender can close before the work is finished by setting up a completion escrow. The holdup has to be something like weather or a materials shortage. The cost to finish has to be 10 percent or less of the as-completed value, the appraiser's value with the work done. The unfinished items have to leave the home safe and sound.

I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, originating since 1996, NMLS #483943, through C2 Financial Corporation, licensed in fifteen states.

What is a completion escrow?

A completion escrow is money set aside at closing to pay for work on the home that is not finished yet. The closing happens on schedule, you take ownership and move in, and the money is held by the closing attorney, title company or lender until the work is done and somebody has confirmed it. Then it gets paid out to whoever did the work, and anything left over goes back to whoever put it up. You may also hear it called an escrow holdback or a repair escrow, and those are the same thing.

It is separate from the escrow account that collects your property taxes and homeowners insurance with your monthly payment, which the learn page on how a monthly escrow account works covers.

The rulebook for conventional loans sold to Freddie Mac is Section 5601.3 of the Single-Family Seller/Servicer Guide, Eligibility of a property with incomplete improvements (revised 06/03/2026). It opens with the permission:

Freddie Mac will purchase an eligible Mortgage secured by a property prior to the completion of improvements when the requirements of this Section 5601.3 are met and the Seller reasonably determines the incomplete improvements (i.e., incomplete item(s) and/or repair(s)) cannot be completed (e.g., inclement weather or temporary shortages of building materials).

One word in that sentence needs translating. Freddie Mac's guide uses "Seller" for the lender, because the lender sells the finished loan to Freddie Mac, and the person selling you the home is a different party. The rule covers unfinished items on a new build and repairs on an existing home alike.

The reason for the delay matters. The lender has to be able to say, reasonably, that the work cannot be done before closing, and weather and a materials shortage are the two examples the guide gives. If the work could have been done and simply was not, the lender may not be able to say that. Without it, this section does not allow the escrow, and closing waits for the work.

The work a completion escrow can cover, and the work it cannot

The guide first rules out serious safety and soundness problems, and only then caps the cost. Section 5601.3(b) says:

The incomplete improvements must not be consistent with a C6 condition rating (e.g., active roof leak(s), damaged or failing foundation).

C6 is the lowest rung on the condition scale an appraiser uses, and it describes a home with problems serious enough to affect whether it is safe and sound to live in. A completion escrow is for the last of the work on a home that is already livable. The items that fit are the ones you would expect: the driveway, the deck, landscaping and sod, exterior paint, a fence, gutters, a walkway.

The appraisal has to say what is unfinished, which the guide calls a report completed "subject to" completion, or subject to repairs or alterations. My article on who actually calls for repairs, the appraiser or the inspector covers which items end up on the lender's list in the first place. This one is about closing anyway once something is on that list.

The 10 percent ceiling, and what it is measured against

The dollar rule reads like this (5601.3(b)):

When an appraisal report has been obtained, the cost to complete the incomplete item(s) or repair(s) must not exceed 10% of the "as completed" value of the Mortgaged Premises.

"As completed" value is the number the appraiser puts on the home assuming the work is finished, and it is the number the 10 percent ceiling is measured against. A higher as-completed value means a higher ceiling. On a $400,000 as-completed value, the unfinished work can cost up to $40,000 to complete.

A property data report is a simpler review of the home that some loans use instead of a full appraisal, and it changes the measurement. The guide then tests the cost against "10% of the purchase price or estimated value of the Mortgaged Premises, as applicable." Your loan officer can tell you which one your file used.

The cost to complete, and who is allowed to provide it

Somebody has to put a number on the unfinished work, and the guide is specific about who:

The appraiser or a disinterested (but relevant) party must provide a cost to complete the incomplete improvement(s). Example: A contractor who provides an estimate to install or repair interior walls is a disinterested (but relevant) party. A relevant party may also include a representative of a home improvement store or an independent contractor who performs the services needed to complete the improvements or repairs.

"Disinterested" means the person giving the estimate does not have a stake in the sale, and "relevant" means they know the trade. A concrete contractor pricing the driveway qualifies, and so does the appraiser. The seller's own guess does not, and neither does yours. Please ask for the estimate in writing, with the scope spelled out, because that piece of paper is what the 10 percent is tested against.

How does an escrow holdback work after closing?

The money has to be kept in its own account rather than being handled on a handshake, and Freddie Mac's table says so (5601.3(b)):

The Seller must establish a completion escrow account for the incomplete item(s) or repair(s).

The same row goes on to require that the lender and you both sign a written escrow agreement spelling out how the money will be managed and paid out, and that a copy of it stays in your loan file. So you sign something, and please read it before closing day rather than at the closing table, because it carries the release conditions and the completion date written into the agreement. Your purchase contract and that agreement settle whose money gets held. On a new build it is usually the builder's money, held back out of what they are paid at closing, and on a resale it is usually the seller's.

You also have a deadline, and the guide sets the outside limit:

The incomplete item(s) or repair(s) must be completed no more than 365 days after the Note Date.

The note date is the day you sign the loan. Your escrow agreement will usually carry a much shorter deadline tied to the contractor's schedule. If the work runs past the year, the lender has to report it to Freddie Mac.

The money is released only after someone confirms the work is done:

After the Settlement Date and upon completion of all of the incomplete item(s) and repair(s), the Seller/Servicer must obtain documentation verifying completion and retain it in the Mortgage file.

That verification is typically the appraiser going back out, or another qualified person inspecting the finished work, and writing a short report that says it is done. The money releases on that report. The guide also requires that the delay not leave anyone with a claim against your ownership of the home, such as a contractor's lien for unpaid work, and your closing attorney handles that part.

The steps, from the delay to the finished work

1. The delay surfaces, usually from the builder, the seller's agent or the appraiser. Please tell your loan officer the same day you hear it, because every step below takes a few days.
2. The appraisal is completed subject to the work, and a contractor or the appraiser provides a written cost to complete.
3. Your lender tests that cost against 10 percent of the as-completed value and confirms the unfinished items are not C6-type problems.
4. The escrow agreement is drafted and signed, the purchase contract is amended if it needs to be, and the closing attorney or title company sets up the account.
5. You close, on the original date or close to it, and move in.
6. The work gets finished, somebody qualified confirms it in writing, and the money is released.

Telling your loan officer early is what gives the other steps time to happen before the closing date. My article on what actually happens between contract and closing walks through the four things that run at once on a purchase, and a completion escrow has to be started early enough to fit inside that schedule.

Common mistakes

Hearing about the delay from the builder and waiting a week to mention it. None of the steps above can start until your loan officer knows, and every day of that wait comes off the time available before closing.

Assuming the escrow can cover anything. It cannot cover work that touches safety or soundness, or a scope over 10 percent of the as-completed value. If the unfinished work is a roof or a foundation, the lender needs it done before closing, and a storm that damages the home before closing covers that situation.

On a new build, not asking the builder's lender how they handle this. Whether to use the builder's lender is its own decision. If you are comparing two lenders with a wet season ahead, please ask each of them how they handle unfinished exterior work, and weigh the answers when you compare two Loan Estimates.

An illustration, so the arithmetic is visible

Numbers below are made up to show the mechanism.

You are buying a new home for $412,000. The appraiser values it at $415,000 "as completed," subject to the driveway being poured and the front yard being sodded, and the lot has been underwater for a week. The concrete contractor prices the driveway at $7,400, and the landscaper prices the sod and the irrigation tie-in at $3,100.

• As-completed value: $415,000
• 10 percent ceiling: $41,500
• Driveway, written estimate: $7,400
• Sod and irrigation, written estimate: $3,100
• Total cost to complete: $10,500

The total is well under the ceiling, neither item is a C6-type problem, and the lot has a documented weather reason. The builder agrees to have $10,500 held back from their proceeds under a written escrow agreement with a sixty-day completion date. You close on the original Thursday, the driveway goes in during the first dry week of November, the sod follows, the appraiser confirms both, and the money is released.

Now suppose one fact changes, and the appraiser also noted an active roof leak. That is a C6-type problem, so it gets repaired before closing, the driveway and sod still ride in the escrow, and the closing date moves by however long the roofer needs.

Do FHA, VA and Fannie Mae loans allow a completion escrow?

The rules above are Freddie Mac's, and they apply when your conventional loan is being sold to Freddie Mac. The other programs each have their own version.

An FHA loan on an existing home can also close with a repair escrow when repairs cannot be finished before closing, and the handbook says so. Handbook 4000.1, II.A.3.a, Property Acceptability Criteria (revised 06/27/2025) states the rule. "If repairs for Existing Construction cannot be completed prior to closing, the Mortgagee may establish an escrow account in accordance with Repair Completion Escrow Requirements." The "Mortgagee" is the lender, and the detailed requirements are in a separate part of the handbook.

Fannie Mae has its own section for the same situation, and VA has its own guidance as well. Please ask your loan officer which rulebook your loan runs on, rather than assuming the Freddie Mac numbers carry over.

Your next steps

If a delay is in front of you right now, the first move is a call or an email to your loan officer with three things. You want to tell them the items that will be unfinished at closing, the reason, and the date the contractor expects to be done.

If you are earlier than that and planning a purchase with a build or a repair list in it, you can get pre-approved, which means your income, debts and credit have been reviewed rather than estimated. You can also see rates and closing costs priced for your own scenario without anyone pulling your credit, and choose the option that works best for you.

Nothing here is a loan approval, a denial, a commitment to lend, tax advice or legal advice. Agency guidelines change, individual lenders apply overlays on top of them, and final approval depends on the property, the appraisal and full underwriting.

Common questions

What is the 10 percent rule for a completion escrow?

On a conventional loan sold to Freddie Mac, the cost to finish the unfinished work cannot exceed 10 percent of the home's "as completed" appraised value (Freddie Mac Guide 5601.3, revised 06/03/2026). If the file used a property data report instead of an appraisal, the same 10 percent is measured against the purchase price or estimated value.

Can a completion escrow be used for a roof repair or a foundation problem?

No, on a Freddie Mac loan. The guide says the incomplete items must not be consistent with a C6 condition rating, and it names active roof leaks and a damaged or failing foundation as examples. Those get repaired before closing. A completion escrow is for finishing items such as a driveway, a deck, landscaping or exterior paint.

Who holds the money in a completion escrow, and whose money is it?

The closing attorney, title company or lender holds it, under a written escrow agreement that you and the lender both sign. Your purchase contract and that agreement settle whose money it is. On a new build it is usually held back from the builder's proceeds, and on a resale from the seller's.

How long do I have to finish the work after closing?

Freddie Mac's outside limit is 365 days after the note date, and the lender has to report to Freddie Mac if the work is not done by then. Your escrow agreement will usually set a much shorter deadline tied to the season or the contractor's schedule. Once the work is finished, somebody qualified, often the appraiser, confirms it in writing and the money is released.