How rehab draws work on a fix and flip loan

With most fix and flip loans, the purchase money is paid at closing, but the rehab money isn't. It's held back and paid out in stages called draws. Understanding how draws work is the difference between a smooth renovation and a stalled one.

What is a rehab draw?

A draw is a payment from your lender's rehab holdback, released after part of the work is done. Draws protect both you and the lender: money goes into the property only as value is added.

How the draw process works

1. You submit a scope of work and budget before closing, broken into stages or line items.
2. The lender sets up a draw schedule based on that budget.
3. Your contractor completes a stage of work, such as demolition, framing, or mechanical systems.
4. You request a draw for the completed work.
5. The lender inspects the work, often with a site visit or photos.
6. Funds are released for the approved work, usually by wire.
7. Repeat until the project is done.

Why draws are paid in arrears

Most lenders reimburse completed work rather than paying up front. That means you or your contractor fund each stage first, then get repaid. Plan your cash so you can cover at least the first stage of work.

Tips for faster draws

• Write a detailed scope of work so it's clear what each draw covers
• Take dated photos of finished work
• Request draws for completed stages, not partially done ones
• Keep receipts and invoices organized
• Ask about draw turnaround time and fees before you choose a lender

Frequently asked questions

How long does it take to get a rehab draw?

It depends on the lender, but many release funds within a few business days after the inspection. Asking about turnaround time before you close helps you plan your contractor's schedule.

Do I pay interest on rehab money before it's drawn?

It depends on the loan. Some lenders charge interest only on funds that have been drawn, while others charge interest on the full loan amount from day one. Ask your lender which applies.

What happens if my rehab goes over budget?

The lender typically funds only the approved budget, so overruns usually come out of your pocket. That's why a contingency of 10% to 15% is so important. Use my Rehab Budget Worksheet to build one in.

Planning a renovation? Let's talk about funding it.