Construction Payments: Deposits, Progress, and Final Checks

Here’s a scenario I hear all the time: A homeowner signs a contract for a $40,000 bathroom remodel, hands over a $15,000 deposit, and then watches as the contractor sends progress payment requests that don’t quite match what they expected. By the time the project is done, they’ve paid $45,000 — and they’re not sure where the extra $5,000 came from or whether they should have held something back.

The problem isn’t the contractor. The problem is that nobody explained how construction payments actually work.

Deposits, progress payments, and final payment each serve a different purpose in a construction project. Understanding the difference — and how change orders interact with each type — is the single best way to stay in control of your budget. Let’s break it down.

If you are still reviewing the contract, pair this with the guide to payment schedules and draw requests and the guide to allowances in construction contracts. Those two documents usually explain why the payment plan looks the way it does.

What is a deposit in construction?

A deposit is the money you pay upfront, before any work actually begins. It’s not a down payment in the real estate sense. It’s more like a commitment from both sides — you’re committing to the project, and the contractor is committing to reserve their time, order materials, and pull permits.

How deposits work

Most contractors need money upfront to cover initial costs. Materials are expensive, and most suppliers aren’t giving contractors 60 days to pay. Permits come with fees. And if the project requires specialty items — custom cabinets, imported tile, or fixtures that need to be ordered — the contractor usually has to pay for those well before they’re installed.

A reasonable deposit covers those early expenses without putting either party at risk. For smaller projects, a deposit might cover permits and a few materials. For larger ones, it might cover the first round of material orders and the initial mobilization of the crew.

What’s a reasonable deposit amount?

This depends on your state and the size of your project, but here are general guidelines:

Small projects (under $5,000). A deposit of 25% to 50% is common. Some contractors ask for the full amount upfront for very small jobs. That’s not unreasonable for a $500 repair, but for anything more, 50% should be the ceiling.

Medium projects ($5,000 to $25,000). Most contractors ask for 10% to 30% as a deposit. Check your state law — many states cap deposits at 10% or $1,000 (whichever is less) for home improvement contracts. California, for example, limits the down payment to 10% of the contract price or $1,000, whichever is less.

Large projects ($25,000+). Deposits are often smaller as a percentage — 5% to 15% — because the dollar amounts are significant. A common structure is a small initial deposit followed by a larger payment when materials are delivered to the site.

Warning signs with deposits

A contractor asking for more than 50% upfront. Unless you’re ordering very expensive custom materials that require full payment to the supplier, this is a red flag. High deposits can be a sign that the contractor is using your money to float other projects or pay off old debts.

A contractor who can’t explain what the deposit covers. You should know exactly what your deposit pays for. “We need 30% down” without a breakdown of costs is not a sufficient answer.

Pressure to pay the full deposit before you’ve signed a detailed contract. Never, ever pay a deposit based on a verbal quote or a one-page estimate. Use what should be in a remodeling contract and how to write a room-by-room scope before any money changes hands.

What are progress payments?

Progress payments (sometimes called draw requests or milestone payments) are the installments you pay as work progresses. They’re the backbone of construction financing. Instead of paying the entire project cost at the end (when the contractor has been carrying all the costs), you pay in chunks as each phase of work is completed.

How progress payments work

Progress payments are tied to specific milestones or phases of the project. The payment schedule should be clearly defined in your contract and might look something like this:

• 25% at contract signing — Covers permits, material orders, and mobilization
• 25% when demolition and rough-in are complete — After framing, electrical rough-in, and plumbing rough-in pass inspection
• 25% when drywall, paint, and trim are finished — After the visible finishes are in place
• 15% at substantial completion — When the project is usable (countertops installed, appliances working, fixtures operational)
• 10% at final completion — After the punch list is complete and you’ve done the final walkthrough

The exact percentages vary, but the principle is the same: each payment corresponds to work that has actually been completed. If a lender is involved, read how construction loans affect contractor payment so the lender’s inspection process and the contractor’s milestone schedule do not get out of sync.

Why progress payments matter for homeowners

Progress payments protect you in a few ways:

You’re not funding the whole project upfront. If things go wrong — the contractor walks off the job, gets sick, or runs into financial trouble — you’ve only paid for work that’s been done.

You have leverage throughout the project. The next payment is your motivation for the contractor to keep moving. A contractor who’s been paid in full has less incentive to finish quickly and address punch list items.

You can catch budget issues early. If the first progress payment is already off track (the contractor is asking for more than the schedule allows), that tells you something is wrong before you’re halfway through the project.

What to check before making a progress payment

Before you write a check for any progress payment, verify three things:

The milestone is actually complete. Don’t pay for “once framing is started” — pay for “once framing is complete and has passed inspection.” Be specific in your contract about what completion means for each milestone.

The work quality is acceptable. Walking through and looking at the completed work before paying is your right. If something doesn’t look right, say so before you hand over the money.

Subcontractors have been paid. Ask for lien waivers from subcontractors and material suppliers for the work covered by the previous payment. This ensures that everyone working on your house has actually been paid.

For a deeper explanation of the paperwork behind that step, read lien waivers explained for homeowners before approving a large draw.

Retainage — holding a little back

Retainage (or retention) is the practice of withholding a small percentage — usually 5% to 10% — from each progress payment. That retained money sits with you until the project is fully complete and the punch list is done.

Retainage is standard in commercial construction and smart practice for residential projects over $50,000. If your contract doesn’t include it, consider asking for it.

Here’s how it works: If the contract calls for 10% retainage, and a progress payment is calculated at $10,000, you pay $9,000 and hold back $1,000. Over the full project, the retained amounts add up — and that pool of money gives you leverage to ensure the job is finished properly.

What is final payment?

Final payment is the last check you write — the one that closes out the project. It should be the smallest payment in the schedule, because it’s your final bit of leverage.

For a step-by-step closeout checklist, see final payment: what to check first.

When to make final payment

This is important: final payment comes AFTER you’re satisfied that everything is complete. Not after you’ve walked through the house. Not after the contractor says they’re “basically done.” After the punch list is complete, after systems have been tested, after warranties and documentation have been handed over.

A good rule of thumb: don’t make final payment until at least 30 days after substantial completion. That gives you time to live with the space, notice issues, and get them resolved.

What to verify before final payment

Before you release the final check, run through this checklist:

Punch list complete. Every item on the punch list has been addressed to your satisfaction.

If the punch list itself is still fuzzy, use punch list basics before final payment to define what is actually incomplete before you release money.

All systems tested. Run the dishwasher. Flush every toilet. Turn on every faucet. Test every light switch. Run the HVAC system through a full cycle. Make sure everything works the way it should.

Lien waivers collected. You have unconditional lien waivers from the general contractor, all subcontractors, and all material suppliers who worked on your project. This means no one can come back later and file a lien against your home.

Warranty information delivered. You have written warranty documents for labor, materials, and installed equipment. Know what’s covered, for how long, and how to make a claim.

Operation manuals and maintenance instructions. For appliances, HVAC equipment, water heaters, smart home systems, and anything else that requires regular maintenance.

Final inspection passed (if applicable). If the work required permits, the final inspection should have passed before you make final payment.

How much should final payment be?

Final payment should be significant enough that the contractor has incentive to finish strong. In most residential contracts, final payment is 10% to 15% of the total contract value. For a $50,000 project, that’s $5,000 to $7,500 — substantial enough to matter, but not so large that you can’t afford to hold it.

If you included retainage in your contract, the final payment might be even smaller, since the retained amounts are released separately.

How change orders affect deposits, progress payments, and final payment

Now here’s where things get interesting — and where most budget surprises come from.

Change orders and deposits

A change order is a formal, written modification to your original contract. It changes the scope of work and, usually, the price. Change orders can affect your payment structure in a few ways.

If a change order adds work that requires new materials — for example, you decide to add a skylight mid-project — the contractor might need additional deposit money for those materials, especially if they’re special-order items. That’s reasonable, but it should be clearly documented as part of the change order.

Change orders and progress payments

This is where change orders most commonly cause confusion. Here’s a typical scenario:

Your original contract calls for a $50,000 kitchen remodel with progress payments of $12,500 at each of four milestones. Halfway through, you add a built-in pantry for $3,000 via a change order. Now the total is $53,000.

Does the progress payment for the next milestone increase to account for the $3,000 change? It should — but only if the change order specifies how the payment schedule adjusts. Some change orders add the cost to the final payment. Others adjust the next progress payment. The key is that it should be clearly stated in the change order document.

The golden rule of change orders and progress payments: never pay a progress payment that’s higher than expected without verifying that a change order exists to justify the increase. If the contractor says “we’re asking for $15,500 instead of $12,500 on the next draw because of that pantry change,” ask to see the signed change order before you write the check.

Change orders and final payment

Change orders can turn your final payment into a battleground if you’re not careful. Here’s why:

Many homeowners and contractors agree to “adjust at the end” for change orders — a verbal understanding that all the little changes will be tallied up and settled at final payment. This is a recipe for disagreement.

A year ago, you agreed to move an outlet for $150. Two months ago, you asked the contractor to add a pot filler for $400. Last week, the contractor pointed out that the wall cavity had no insulation and charged $300 to add it. Add up all those small adjustments, and suddenly your final payment is $2,000 more than you expected — or your contractor is claiming you owe an additional $2,000.

The fix is simple: document every change order in writing as it happens, including the cost and how it affects the payment schedule. Never defer change order pricing to “the end.” By the time you get to final payment, the only open items should be punch list work, not budget surprises.

If a change order is already on the table, use change orders: how to review before you sign before you approve the extra cost.

Protecting your budget: practical tips

Here’s the bottom line on managing deposits, progress payments, and final payment through a construction project.

Get the payment schedule in writing. Your contract should clearly state every payment — the amount, when it’s due, what milestone triggers it, and what documentation you need before paying.

Never pay more than the value of completed work. This is the fundamental rule. If the contract says the next payment is $10,000 but only $5,000 of work has been done, don’t pay $10,000. Renegotiate.

Use a schedule of values. Ask your contractor to provide a schedule of values — a breakdown of the contract price by work item (how much for demolition, how much for electrical, how much for drywall, etc.). This makes it easy to verify that progress payments match the actual value of completed work.

For help reading those line items, compare them against labor, materials, and markup in contractor pricing.

Document change orders immediately. The moment you agree to change something, get it in writing. Price, schedule impact, and how it affects the payment schedule. Don’t wait.

Hold final payment for leverage. Your last check is your strongest protection. Don’t release it until the project is truly complete, the punch list is done, and you have all your documentation.

Know your state’s laws. Many states have specific rules about how much a contractor can demand as a deposit, how quickly they must complete work, and what your rights are if things go wrong. A quick call to your state’s contractor licensing board can save you a lot of headaches.

Quick Answers

How much deposit is reasonable for a contractor?

For most residential projects, 10% to 30% is reasonable, depending on the size of the job. Check your state law — many states cap deposits at 10% or $1,000. For large projects, a smaller percentage is appropriate since the dollar amount is already significant.

What happens if I pay a deposit and the contractor doesn’t start work?

This is why you should never pay a deposit without a signed contract that includes a start date. If the contractor doesn’t start within the agreed timeframe, you have legal recourse. Contact your state’s contractor licensing board or an attorney.

Can a contractor demand full payment before the work is complete?

Only if your contract says so. Most contracts use progress payments linked to milestones. If a contractor is pressuring you to pay in full before the job is done, that’s a red flag.

Do I have to pay for change orders I didn’t approve?

No. A change order requires mutual agreement. If the contractor does extra work without a signed change order, you’re not legally obligated to pay for it — though the rules vary by state and specific circumstances.

What’s the difference between retainage and a final payment?

Retainage is money held back from each progress payment (typically 5% to 10%) that accumulates over the project and is released when the work is complete. Final payment is the last scheduled payment in your contract. They can be two separate amounts or combined into one final check, depending on how your contract is structured.

Should I use a credit card for construction payments?

For smaller amounts, using a credit card can give you additional protections under the Fair Credit Billing Act. For large projects, most contractors won’t accept credit cards for the full amount due to processing fees, but you might be able to put the deposit on a card for extra protection.