| For | Investors renovating property for resale |
| Core issue | A rehab commitment may reimburse work after completion |
| Example | Hypothetical purchase, rehab budget and working cash |
| Prepare | Scope of work, payment schedule, cash plan and exit |
A fix-and-flip lender can finance a rehab budget while still requiring you to have cash available before each draw. The reason is timing: a construction holdback is a commitment to fund eligible work under the loan's conditions. It is not necessarily an upfront deposit into your account. If your contractor needs payment before the lender reimburses completed work, you must cover that interval.
For a first project, map the contractor's payment calendar against the proposed lender's draw process before signing either agreement. A project can look profitable on paper and still stop because the next trade cannot be paid. Our first fix-and-flip financing guide covers the overall transaction; this article focuses on the cash between draws.
Ask what the rehab holdback actually covers
Separate the purchase advance from the renovation holdback. Then ask which budget items qualify, how completion is verified and who receives the disbursement. A line showing $80,000 available for rehab does not establish that a $20,000 materials deposit will be funded before installation.
Processes vary. As one lender-specific example, Lima One's published draw explanation describes budget review, completed work, inspection and reimbursement. It also explains that interest treatment can differ among lenders. This source illustrates why you need the actual process for your selected loan; it is not a promise that Stonehaven's placements share one lender's eligibility, timing or pricing.
A hypothetical first-flip cash plan
Assume a $200,000 purchase and an $80,000 approved renovation budget. For this example only, the lender advances $150,000 toward the purchase and holds $80,000 for eligible rehab reimbursements. The total commitment is $230,000, but the full amount is not available at closing. These figures are educational assumptions, not a current loan offer.
| Cash need | Amount |
|---|---|
| Purchase price less purchase advance | $50,000 |
| Assumed closing costs paid in cash | $12,000 |
| Temporary working cash for the draw cycle | $25,000 |
| Separate carrying and contingency cash | $18,000 |
| Total initial cash capacity in this plan | $105,000 |
The $25,000 working amount is a liquidity assumption, not another $25,000 added to the $80,000 construction cost. It can be reused when a permitted reimbursement arrives, then spent on the next eligible stage. The $18,000 is a separate assumed cushion that must be checked against the real schedule and obligations. Neither figure is a universal lender reserve requirement or a guarantee of sufficient funds.
If you pay $20,000 for completed eligible work from the working account, $5,000 remains before reimbursement. A later approved $20,000 draw replenishes that account to $25,000. But if another $12,000 invoice comes due before the draw arrives, you have a temporary $7,000 gap. Show that overlap explicitly rather than assuming all reimbursements arrive before the next bill.
Build a payment calendar for the actual scope
List each trade or milestone, its budget, deposit, expected completion date, payment due date and draw eligibility. Ask the contractor to explain how the schedule handles long-lead materials, subcontractors and changes. Compare those dates with inspection and funding steps. Do not promise your contractor a lender payment date that has not been confirmed.
The approval package should describe the work, not just a single total. A $15,000 line labeled kitchen renovation may leave unanswered questions about cabinets, labor, appliances and timing. A clear breakdown helps explain the request and identify items the borrower must fund directly. For more preparation detail, use the first rehab loan guide.
Six draw questions to ask before closing
- Are deposits or stored materials eligible, and what evidence is required?
- Is an advance based on completed work, paid invoices or another condition?
- Are funds paid to the borrower, contractor, title agent or another party?
- What inspections, lien documents and approvals are needed?
- Are there minimum requests, fees, retainage or a limit on draw frequency?
- How are change orders and budget reallocations approved?
Also confirm whether interest is charged on drawn funds or another contractual balance. A nominally similar loan amount can produce different carrying costs. Include inspection costs, title updates, extension conditions and any holdback at completion in the comparison. Your attorney and title provider can explain the lien-related requirements that apply to the property's state and contract.
Plan for a delayed or reduced draw
Run one scenario in which the next reimbursement arrives after another contractor payment is due. Run another in which part of a request is not yet eligible. Identify the cash source that covers each gap while retaining funds for taxes, insurance and loan obligations. Do not count the same cash as working capital, a contingency and your next project's down payment.
If the budget changes, update the remaining cost to complete before asking for a higher draw. A lender's approval of the original rehab amount does not authorize extra borrowing or additional work. Early communication gives the parties a clearer problem to solve; it does not guarantee more funds or an extension.
How Stonehaven can assist with placement
Stonehaven is a mortgage brokerage that arranges financing through third-party lenders. We can review the purchase or payoff, rehab scope, expected completed value, experience and cash plan to identify potential financing options. Use our fix-and-flip financing page and include your target closing date. We follow up by text. Final structure and draw conditions remain subject to the selected lender's underwriting.
Frequently asked questions
Does financing 100% of rehab mean no money out of pocket? No. Acquisition equity, fees, carrying costs and the timing of reimbursements can still create cash needs. Ask exactly which costs are eligible.
Can I use the same working cash for multiple projects? Only to the extent it is actually available when each project needs it. Model overlapping payment dates and disclose other commitments to the lender.
Can I change contractors after closing? The loan agreement may require review or consent. A replacement can affect budget, completion timing and draw documentation. Confirm the process before making commitments.
Is a draw inspection a warranty of construction quality? Do not assume it is. Clarify the inspection's purpose and retain the appropriate professionals for quality, code compliance and contract administration.