A loan with an undrawn construction holdback is a loan with an open commitment. The borrower expects money to keep arriving as work is completed, and someone has to be ready to fund it. When you sell that loan, the commitment does not disappear. It has to be assigned, retained or otherwise settled, and the buyer needs to see exactly where the project stands.
This is the part of a rehab or construction loan sale that lenders most often leave until late. It is worth settling first.
What a holdback is, in plain terms
On a rehab or ground-up loan, the lender typically funds part of the loan at closing and holds the rest back for construction. The borrower requests draws as work is completed. The lender, or an inspector working for the lender, confirms the work before releasing funds. The undrawn amount is the holdback, sometimes called the construction reserve.
At the moment you sell, the loan has an outstanding funded balance and a remaining holdback. The buyer is purchasing the first and taking a position on how the second will be handled.
The question every buyer will ask
Who funds the remaining draws after the sale? In the broader market there are several common arrangements. The buyer may take over the remaining commitment and fund future draws. The seller may keep funding and be reimbursed, or retain the unfunded portion. The draw administration may sit with a servicer or a third-party draw manager regardless of who supplies the money.
At CorrFirst, the answer is simple: after purchase, we fund the remaining draws. The borrower or the seller requests a draw, we order a third-party inspection, and once the inspection is reviewed and approved we release the draw to the borrower. The borrower is never left waiting on a draw while two lenders work out who pays.
What to hand over
The bid on a partially drawn loan is priced on your tape or seller portal data, including the funded balance and the remaining holdback. Once you accept, diligence needs the full construction picture. Prepare:
- The original budget: line by line, as approved at closing.
- The draw schedule: the milestones or line items that trigger each draw.
- The draw history: every draw requested and funded, with dates and amounts.
- Inspection reports: the report behind each funded draw, including photos where you have them.
- The remaining holdback balance: what is left, by line item if possible.
- Servicer and escrow detail: who services the loan, who administers draws, and where the holdback funds sit today.
- Any budget changes: reallocations between line items, change orders, and the approvals behind them.
The single most useful thing you can do is reconcile these before you send them. The funded balance plus the remaining holdback should equal the loan amount, and the draws on record should tie to the inspection reports. The balances on your tape should match them too, since that is what the bid was priced on.
What buyers look for in the draw history
A draw history tells a buyer whether the project is on track. Reviewers generally look for:
- Draws that follow inspected progress rather than running ahead of it.
- A remaining holdback large enough to finish the work in the scope.
- Line items that are close to fully drawn while the related work is incomplete.
- Long gaps between draws that might signal a stalled project.
- Reallocations that moved money out of later-stage line items to cover early overruns.
None of these automatically disqualifies a loan. They are the questions a buyer will ask, and having the answers in the file shortens diligence.
What CorrFirst buys
CorrFirst buys partially drawn rehab loans on 1-4 family properties, multifamily up to 25 units and mixed-use up to 10 units, and ground-up construction loans up to 10 units, including multifamily and mixed-use. We return a bid within 24 hours of a tape or seller portal registration. After you accept, our AI underwriting reviews the construction budget and feasibility on every loan where they apply, alongside the appraisal and every loan condition, and our underwriters clear each finding. The bid holds through the commitment period unless diligence finds a material defect, and we purchase once diligence is cleared and the collateral documents are received and cleared.
Talk to the borrower early
A borrower in the middle of a renovation cares about one thing: that the next draw arrives on time. Whatever arrangement you agree with the buyer, make sure the borrower knows where to send draw requests and who will inspect and approve them after purchase, when servicing transfers. A clean handoff protects the project, and the project is what protects the loan.
A short checklist
- Reconcile funded balance, holdback and loan amount.
- Match every funded draw to an inspection report.
- Document any budget reallocations and approvals.
- Confirm where the holdback funds are held and who administers draws.
- Ask any buyer who funds the remaining draws before you accept a bid.
If you have a partially drawn loan to sell, see our fix and flip program for what we buy and how we review it.
