In one sentence
A percentage of each construction payment withheld until the work is complete and the period for filing mechanics liens has passed.
The longer version
Retainage protects against a contractor walking away with the last and hardest work undone, and against liens surfacing after final payment. The percentage and the release conditions are set in the construction contract and mirrored in the loan documents.
Several states regulate retainage on private work, capping the percentage or requiring reduction after substantial completion. Because the rules differ by state, the loan documents should match the contract and the contract should match local law, and that alignment is worth confirming at closing rather than at final draw.
Common questions
- How much retainage is typical?
- Ten percent of each payment is the common figure, often reduced to five percent after the project reaches substantial completion.
- When is retainage released?
- After completion, final lien waivers, and the expiry of the statutory lien filing period, with the exact conditions set by the construction contract and the loan documents.
- Is retainage regulated?
- In many states, yes. Statutes can cap the percentage or require reduction at substantial completion, so the contract terms need to be checked against local law.
Keep reading