Ask three cash questions—not one
“What is my down payment?” is a useful opening question, but it is not a complete project budget. Before committing to an investment property, understand your total contribution through closing, the amount still due on closing day, and the cash you need after the keys change hands.
A strong financing conversation connects those three figures. It also distinguishes a preliminary estimate from the final, transaction-specific settlement figures. The example below is an original planning exercise for a business-purpose, non-owner-occupied project, not a Gustafson Capital quote, a reserve requirement, or a promise of financing.
A $225,000 loan does not mean $225,000 at closing
Assume a $200,000 purchase, $50,000 approved rehab budget, and $225,000 total loan commitment. If the full $50,000 rehab allocation is held for future draws, the initial advance is $175,000. That leaves a $25,000 purchase gap before the other closing items.
For simplicity, assume no financed fees, seller credits, other holdbacks, or settlement adjustments. In a real file, each can change the result. Request an itemized estimate showing which costs are financed, paid separately, already paid, credited, or still due.
Scroll the table sideways to see every column.
| Cash item | Illustrative amount | What it means |
|---|---|---|
| Purchase gap | $25,000 | $200,000 purchase less $175,000 initial advance |
| Closing fees | $8,000 | Assumed separate from the purchase gap |
| Prepaids and settlement items | $2,000 | Assumed separate from closing fees |
| Total contribution through closing | $35,000 | $25,000 + $8,000 + $2,000 |
| Earnest money already paid | $5,000 | Assumed credited at settlement |
| Remaining closing wire | $30,000 | $35,000 less the $5,000 deposit |
| Additional rehab working capital | $10,000 | Illustrative draw-timing allowance |
| Separate contingency | $5,000 | Illustrative unexpected-cost allowance |
| Separate carrying-cost buffer | $6,000 | Illustrative post-closing holding allowance |
| Total planning liquidity | $56,000 | $35,000 + $10,000 + $5,000 + $6,000 |
Plan for the space between paying and being reimbursed
Even when an approved rehab budget is financed, the borrower may need cash to start work. A reimbursement-based draw can arrive after labor or materials have been paid for and documentation has been reviewed. Other structures may release funds by completion percentage or milestone. Do not assume one method applies to every request.
Map the contractor’s payment schedule against the expected draw schedule. Ask about inspections, invoices, receipts, lien releases, minimum draw amounts, fees, retainage, and the final draw. A financed dollar is not necessarily an immediately available dollar, and a planned draw date is not a guarantee.
Financed costs change timing—not necessarily total cost
An interest reserve, financed closing costs, or deferred points can reduce a particular cash payment while adding to the loan balance, using part of an approved commitment, or becoming payable later. Ask what remains available for acquisition and improvements after every allocation. Do not add the same funded expense to your cash budget again.
Also confirm whether interest is charged on the full committed amount or only the amount actually advanced, when charges begin, and what happens if the project takes longer. Loan fees, extension costs, insurance, taxes, utilities, selling expenses, and repayment obligations can affect the exit even when the initial wire looks attractive.
Prepare a cash plan you can actually use
Keep each budget category distinct, then replace assumptions with written estimates as the file develops. A bigger buffer does not rescue an unworkable deal; it helps you see the financing and execution risks before you commit.
- Reconcile the total commitment to the net initial advance and all holdbacks.
- Track the earnest deposit and other already-paid items separately from the remaining wire.
- Build a contractor-and-draw timeline, with a clear source for temporary funding gaps.
- Keep contingency and post-closing carrying allowances separate from fees and prepaids.
- Compare both the lowest cash-to-close structure and the lowest expected total-cost structure.
Common questions
Is $56,000 the required cash for a project like this?+
No. It is the total of the deliberately simplified assumptions shown here. Your actual contribution, reserves, draw needs, and costs must be established for your transaction.
Can a seller credit reduce my closing contribution?+
Potentially, if the contract, financing terms, and settlement treatment permit it. Confirm the eligible amount and use in writing rather than assuming a credit can cover every item.
Does the lowest closing wire mean the cheapest loan?+
Not necessarily. Compare amounts advanced, amounts financed or deferred, interest calculations, fees, repayment timing, and the expected holding period together.
Source notes
Reference material for the concepts discussed—not Gustafson Capital program requirements or a representation that financing is available.