The Quick Read: Yes, a rehab holdback can cover the repairs on an approved scope of work, but only on a reimbursement basis: the lender escrows the rehab budget at closing and releases it in draws after finished work is verified, so you fund each phase first and get repaid after.
- Up to 100% of the rehab budget can fund in draws against completed work. That is a rehab-budget figure, never a purchase loan-to-value.
- Fix-and-flip leverage is tiered by completed projects: 85% of project cost with fewer than 2, 90% at 2+, and 93% at 5+, every tier capped at 75% of after-repair value.
- You need working cash beyond your down payment to bridge each phase between draws.
- Work outside the approved scope, overruns, and carrying costs generally sit outside the holdback.
- Every figure varies by lender, property, and experience, and nothing here is a commitment to lend.
What the Holdback Is and Isn’t
A holdback is the rehab money the lender keeps in an escrow-style account instead of handing it to you at closing. Your loan has two parts. The purchase portion funds at closing. The rehab portion sits in the holdback until work is done.
What this loan actually costs to carry.
Hard money is sized against the project and priced by time. Enter the deal and see how much the program will lend, the cash required at closing, the carry while you hold it, and what is left at the exit.
Leverage tiers on the current program: 85% with fewer than 2, 90% with 2 or more, 93% with 5 or more completed projects — every tier capped at 75% of after-repair value. Loan amounts up to $5,000,000, larger by exception; terms of 6 to 18 months, interest-only, no prepayment penalty. The rehab portion funds in draws against completed work, not at closing.
Program parameters shown update from Lendmire’s centralized guideline source. Rate, points, and months are editable assumptions, not quoted terms.
Cost cap sets the loan · positive spread
Illustrative estimate only — not a quote, Loan Estimate, approval, or commitment to lend. Rate, points, and months are editable assumptions. Hard money is business-purpose financing for real estate investors, not a consumer mortgage. Leverage on the current program tops out at 93% of project cost for investors with a documented track record, capped at 75% of after-repair value, with rehab funding up to 100% of the documented budget released in draws; actual terms vary by lender, borrower experience, property, and exit. Lendmire is a mortgage broker, not a lender.
Why do lenders do it this way? They size the loan on the finished value of the house. If the rehab money went into your pocket on day one and got spent elsewhere, the lender’s collateral would be an un-rehabbed property. Holding the money back protects the lender and, indirectly, keeps your budget honest.
Here is where the phrase “100% rehab financing” misleads people. Across the hard money programs Lendmire places files with, it means the whole approved rehab budget is eligible to fund in draws. It does not mean you receive that money up front. There is no true 100% purchase program either. The purchase side runs on loan-to-cost tiers, and the rehab side funds as work is completed.
Nothing in federal law sets the draw rules for private hard money. The loan agreement controls, and agreements differ from lender to lender. That is why the sections below focus on how to test your own deal rather than quote a universal rulebook.
How Does a Draw Cycle Work?
A draw cycle runs in a fixed order: finish a phase of work, pay for it, request the draw, get it verified, and receive the release. You carry the cost between payment and reimbursement.
1. Scope and budget. You submit a line-item budget. The lender approves it and sets the conditions for releasing funds.
2. Fund the first phase. Many lenders expect you to cover early costs so the contractor can buy materials and start. Some lenders advance a portion up front, usually to experienced investors. Practice varies.
3. Draw request package. A typical package holds a draw form, an updated budget, invoices, progress photos, and lien waivers.
4. Verification. An inspector, or in some cases photos or video, confirms the work matches the approved scope. Some lenders inspect every draw at the investor’s expense.
5. Release. The lender releases the approved amount, sometimes less a retained portion.
6. Final draw. The last release is effectively your money coming back after the project is complete.
An inspection confirms progress for the lender. It is not a permit or code sign-off, so keep those separate in your plan.
For a public template, look at the federal side. FHA’s 203(k) program is an owner-occupant product, not a hard money benchmark, but its forms show how a structured draw works. The HUD 203(k). Borrower’s Acknowledgement sets a 10% holdback on each draw, and the OMB-posted copy of the form describes holding that 10% for up to 35 days, longer if state lien law requires. Private lenders are not bound by any of this. Treat it as a picture of the concept, not a term you should expect.
Where Your Cash Goes Between Draws
The holdback is not a cushion. It is a reimbursement pool, and the cash gap is the part first-time flippers underestimate.
| Stage | Who funds it | Your exposure |
|---|---|---|
| Closing | Lender (purchase portion) | Down payment and closing costs |
| First phase of work | Usually you | Contractor deposits and materials |
| Draw request | You, while waiting | Paid work not yet reimbursed |
| Inspection and release | Lender | Delay if paperwork is incomplete |
| Final draw | Lender | Last phase paid by you first |
Think in phases, not in a single cash total. Your peak exposure is the largest amount of paid-but-unreimbursed work at any moment. A lender who is looking out for you will confirm you hold the reserves to start the rehab before lending.
Stalled packages usually trace back to a few causes: missing lien waivers, unpaid contractors, work that doesn’t match the approved scope, or an inspection that comes back short. A retained portion can also sit until liens clear, and lien periods vary by state.
Will It Cover Your Repairs? A Five-Point Test
The holdback covers what the approved budget lists. Whether that is enough for your flip is a question you can test before you sign.
1. Match the budget to the repair list. Every item you plan to do should appear as a line in the approved scope. Unlisted work is unfunded work.
2. Check the bids. An underbid scope can leave a holdback short. Get contractor bids in writing, not rough guesses.
3. Plan for hidden conditions. Structural, plumbing, electrical, and permit surprises show up after demolition. Ask the lender how scope changes and budget reallocations get approved.
4. Carry a contingency of your own. Cash outside the holdback is what absorbs overruns. Don’t count on the lender to cover them.
5. Compare against value. Some lenders get cautious when the rehab is very large relative to as-is value. Your total loan is also capped at 75% of after-repair value on every leverage tier, so a heavy rehab can hit that ceiling before the budget is fully funded.
That last point matters most for aggressive flips. Strong leverage on cost does not override the after-repair value cap. Run both limits against your numbers.
Covered vs. Not Covered
| Cost category | Typically in the holdback? |
|---|---|
| Approved line-item repairs | Yes, as work is verified |
| Change orders | Only if the lender approves the change |
| Unapproved or off-scope work | Generally no |
| Materials delivered but not installed | Usually no until installed |
| Carrying costs and interest | Generally outside the holdback |
| Permits and soft costs | Depends on the agreement |
| Per-draw inspection and wire fees | Usually a separate cost to you |
Materials are a good example of how lenders think. HUD’s rule is that materials on site cannot be included in a draw until installed, as described in Yieldstack’s draw schedule explainer. Private lenders sometimes make exceptions for long-lead items, but you should not assume one.
Fees vary widely, so ask for the lender’s per-draw cost in writing.
What If Costs Exceed the Holdback?
You pay the difference unless the lender agrees to amend the budget. Plan for that outcome before you need it.
| Scenario | Who usually pays | What to do |
|---|---|---|
| Real overrun on an approved line | You | Ask about reallocating within the budget |
| New work discovered mid-project | You, until approved | Request a written scope change first |
| Inspector disagrees on completion | You carry it | Document with photos, finish, resubmit |
| Contractor unpaid or no lien waiver | You | Pay and collect waivers before requesting |
| Rehab runs past the loan term | You | Talk to the lender before the term ends |
Leftover holdback at the end of the project is handled under the loan agreement. Ask the question at the start, not at payoff.
Delays carry their own cost. The loan term on this kind of financing runs 6 to 18 months, interest-only, so a stalled draw cycle eats into the time you have to sell or refinance. Yieldstack notes that draw speed, inspection cadence, and whether interest accrues on undrawn funds decide the real carry cost. Ask which interest method applies.
A practical note from the broker’s desk: across the deals Lendmire sees, the files that run smoothly are the ones where the investor treats lien waivers and photos as part of the work itself, not as paperwork to chase afterward.
Mistakes to Avoid
- Reading “100% rehab financing” as cash at closing.
- Budgeting to the exact bid with no contingency.
- Paying contractors without collecting lien waivers.
- Starting extra work before the lender approves the change.
- Ignoring per-draw fees and inspection costs in the project budget.
- Forgetting that leverage tiers reward experience. First-time investors qualify at the lower tiers, and the top tier is reserved for investors with documented completed projects.
Questions to Ask Before You Sign
- Is rehab funded on reimbursement, or are any funds advanced up front?
- How many draws are allowed, and what does each cost?
- Who inspects, and is there a virtual option?
- Is any portion of each draw retained, and when is it released?
- Does interest accrue on the full loan or only on funds drawn?
- How are scope changes approved?
- What happens to unspent funds?
Draw rules live in the loan agreement, so get answers in writing. Terms vary by lender, property, and experience.
Where the Exit Fits
A flip that sells ends the loan. A property you plan to keep has a different path. Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized and rented, and Lendmire brokers that path. DSCR compares rent to the full monthly obligation, subject to lender guidelines. Lendmire’s complete DSCR loans guide explains how that works. If you are planning how to retire a bridge note and a rehab draw balance, Lendmire’s article How to Make a DSCR Cash-Out Cover Your Hard Money Note and Rehab Cards covers that exit.
Key Terms Defined
- Holdback: the rehab money the lender keeps in escrow and releases as work is verified.
- Draw: one release of holdback funds against completed work.
- Scope of work: the line-item list of repairs the lender approves.
- Lien waiver: a signed document where a contractor gives up lien rights for paid work.
- Retained portion: the share of a draw the lender holds back until later.
- Contingency: your own cash reserve for overruns outside the approved budget.
Frequently Asked Questions
Do I get the rehab money at closing?
No, not in most cases. The rehab portion sits in the holdback and funds as work is completed and verified. Some lenders advance part of it up front, usually for experienced investors, but reimbursement is the norm.
How much of the project can hard money finance?
It depends on your experience. Fix-and-flip loans fund 85% of project cost with fewer than 2 completed projects, 90% with 2+, and 93% with 5+, always capped at 75% of after-repair value. Up to 100% of the rehab budget funds in draws. These figures vary by lender, property, and experience and are not a commitment to lend.
Who pays for the first phase of work?
Usually you. Lenders commonly expect you to start the project with your own funds, and then reimburse that work once it is verified. Budget for that cash before you make an offer.
Does a holdback slow down my loan?
Not by itself. The holdback is structured at closing, and the draw cycle runs afterward. Delays more often come from incomplete draw packages than from the holdback itself.
Is there a standard draw system?
No. Lenders run different but similar systems, and the loan agreement sets the terms. Only FHA 203(k) has a federal draw form, and it does not govern private hard money.
If you are buying, rehabbing or refinancing an investment property on a short timeline and want to see how the numbers work, Lendmire can help you compare hard money options based on the project, the exit plan, leverage, and your goals. Reach the team at 828-256-2183 or request a quote.
Tax treatment varies; consult a qualified professional.
About Lendmire
Lendmire, NMLS# 2371349, is a DSCR and non-QM mortgage brokerage with investor loan programs in 41 markets, including Washington, D.C. DSCR eligibility is commonly reviewed by the lender around property-level rent rather than personal income documentation, subject to lender guidelines, and the brokerage helps arrange financing for LLC-owned portfolios beyond conventional financed-property limits. Recognized by Scotsman Guide as a Top Mortgage Workplace in 2025 and 2026.
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References
1. HUD 203(k). Borrower’s Acknowledgement
3. Yieldstack: Fix-and-Flip Loan Draw Schedule
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Hard Money Maximum Loan Amount Requirements for a Flip · How Rehab Scope Changes the Contingency a Hard Money Loan Needs · How to Get Rehab Draws Released on a Hard Money Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.