Fix and Flip Loans · 3 min read
How Rehab Draws Work on a Fix and Flip Loan
How rehab holdbacks and draws work on fix and flip loans: the draw process, inspections, timing, and how to get draws approved faster.
This guide is part of our Fix and Flip & Hard Money Loans hub.
On most fix and flip loans, the renovation money is not handed over at closing. The lender holds it back and releases it in stages, called draws, as the work gets done. Understanding the draw process keeps your project on schedule and your contractors paid.
What a rehab holdback is
When a fix and flip lender approves your scope of work, the rehab budget is set aside in a holdback account. You pay for the first phase of work up front, then request reimbursement through a draw. This protects the lender: money goes into the property only after value is added.
How a typical draw works
- Complete a phase of work from your approved scope.
- Submit a draw request listing the completed line items, often with photos and invoices.
- The lender sends an inspector, or asks for a virtual inspection, to confirm the work.
- The lender releases funds for the verified work, minus any inspection fee.
- Repeat until the project is finished.
Timing and cash flow
Draws commonly take several days to a couple of weeks from request to funding. Because you front the cost of each phase, plan your liquidity accordingly. Lenders review your reserves for this reason.
How to get draws approved faster
- Submit a detailed, line-item scope of work at underwriting. Vague budgets lead to disputed draws.
- Group work into clear phases that match your scope line items.
- Take dated photos before and after each phase.
- Keep invoices and lien waivers from contractors.
- Request draws for completed work only. Partial items are often rejected.
Common draw problems
- Changing the scope mid-project without lender approval.
- Materials on site but not installed, which many lenders will not fund.
- Inspector access delays.
- Budget overruns with no contingency. Some investors cover gaps with an unsecured business loan.
Questions to ask your lender
- How many draws are allowed and is there a minimum draw amount?
- What is the inspection fee and turnaround time?
- Is interest charged on the full loan or only on funds disbursed?
- Can a portion of the rehab budget be funded at closing?
The answers vary widely between lenders and affect your real cost, so ask before you commit. For the full picture of qualifying, see how to qualify for a fix and flip loan.
Related guides
- How to Qualify for a Fix and Flip Loan: What Lenders Look For
- Hard Money vs. Bank Loans for Real Estate Investors
- How to Calculate ARV and Use the 70% Rule
Explore the full hub: Fix and Flip & Hard Money Loans. Other financing: DSCR & Long-Term Rental Loans · Commercial Real Estate Loans · Unsecured Business Loans · Trust Deed Investing.
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Terms, leverage and timelines vary by lender, property and borrower qualifications. This article is general information, not financial, legal or investment advice, and not a commitment to lend.