How do rehab draws work on a fix-and-flip loan?
The rehab portion of a fix-and-flip loan is usually held back at closing. As each stage of work is finished, you request a draw, an inspector verifies the progress, and the lender releases the money for the completed line items, often less a per-draw fee. Most lenders reimburse completed work, so you front each stage. Procedures vary by lender.
What is a rehab holdback?
When the loan closes, the lender funds the purchase advance to the seller and keeps the approved rehab budget in a holdback (also called a construction or rehab reserve). The money is part of your loan, but you cannot spend it until the work it pays for is done and checked. That protects the lender: if a project stalls, unspent rehab money has not left the building. Lenders commonly fund up to 100% of the approved budget this way, as explained in the program overview.
Some lenders also hold back an interest reserve to cover payments during the rehab, and some advance a first draw at closing for materials or demolition. Ask about both before you compare offers.
Building the draw schedule
The draw schedule comes from your line-item budget. Group the work into stages an inspector can verify, with a dollar amount for each. Here is an illustrative $80,000 budget:
| Draw stage | Amount | Cumulative |
|---|---|---|
| Demolition and rough-in | $15,000 | $15,000 |
| Roof and windows | $18,000 | $33,000 |
| Mechanical, electrical and plumbing | $17,000 | $50,000 |
| Kitchen and bathrooms | $20,000 | $70,000 |
| Flooring, paint and finishes | $10,000 | $80,000 |
| Total rehab holdback | $80,000 |
$15,000 + $18,000 + $17,000 + $20,000 + $10,000 = $80,000. Stages that match how your contractor actually works make inspections faster. A schedule with one huge final draw forces you to carry most of the job on your own cash.
The draw process, step by step
- Finish the stage. Complete the line items in the draw. Partial stages are often paid only for the share the inspector can verify.
- Submit the request. Usually a draw form with photos, and sometimes invoices, receipts or lien waivers from the contractor and suppliers.
- Inspection. A third-party inspector visits, or reviews a photo or video inspection, and reports the percentage complete for each line item.
- Approval and funding. The lender approves the verified amount, deducts any draw or inspection fee and wires the funds, commonly within several business days of the inspection. Timing varies by lender.
- Final draw. The last draw may require final permits, a certificate of occupancy where applicable, and a clean title update showing no new liens.
Interest on the drawn balance vs the full loan
Some lenders charge interest only on money actually drawn; others charge on the full loan amount, including the undrawn holdback, from day one. On a short hold the difference is real. Using the schedule above with one draw a month and the sale at month six:
| Month | Holdback drawn | Undrawn |
|---|---|---|
| Month 1 | $0 | $80,000 |
| Month 2 | $15,000 | $65,000 |
| Month 3 | $33,000 | $47,000 |
| Month 4 | $50,000 | $30,000 |
| Month 5 | $70,000 | $10,000 |
| Month 6 | $80,000 | $0 |
| Total undrawn dollar-months | $232,000 |
$80,000 + $65,000 + $47,000 + $30,000 + $10,000 + $0 = $232,000 dollar-months. Each 1% of annual interest on that undrawn money is $232,000 × 1% ÷ 12 ≈ $193. At a rate of several percent, full-balance interest adds several times that over six months. Ask which method applies and compare it with the rate and points together.
How much working capital do you need between draws?
With reimbursement draws you pay the contractor first and get repaid after inspection. At minimum, keep enough to fund your largest stage, $20,000 for kitchens and baths in the example, plus time for the inspection and wire. Add your contingency, because the holdback covers only the approved budget. Small fees add up too: at an illustrative $250 per draw inspection, five draws cost $1,250. The requirements guide shows a full liquidity budget.
How to avoid draw delays
- Match draw stages to the contractor’s schedule and payment terms.
- Take dated photos of each line item, inside and out.
- Collect invoices and lien waivers as you go.
- Pull permits before work starts; an inspector may flag unpermitted work.
- Request the draw as soon as a stage is done, not when the contractor is already waiting.
- Keep the lender informed about delays; an unexplained stall can trigger extra review.
New to flipping? Draw rules are often stricter for first projects; see the first-time flipper guide. To see how the holdback fits the overall loan size, read ARV and loan-to-cost explained.
Planning the rehab budget now?
Share your scope, budget and timeline. LoanFight reviews the scenario and connects you with a lending partner whose draw process fits how your project will actually run.
Tell Us About Your Deal →Rehab draws: frequently asked questions
Do I get the rehab money at closing?
Usually not. The rehab budget is commonly held back and released in draws after inspections. Some lenders advance a first draw at closing for materials or early work, but most reimburse completed work.
How long does a draw take to fund?
Commonly several business days after the inspection, depending on the lender, the inspector’s schedule and whether your request is complete. Photos, invoices and lien waivers ready at submission speed it up.
How much does a draw inspection cost?
Fees vary by lender and inspector and are usually charged per draw. Ask for the fee and the expected number of draws in writing, because repeated small fees add up over a project.
What is the difference between Dutch and non-Dutch interest?
With interest on the drawn balance, often called non-Dutch, you pay interest only on money actually disbursed. With Dutch interest you pay interest on the full loan, including the undrawn holdback, from closing. Drawn-balance interest is usually cheaper on the same rate.
Can I do the work myself and still get draws?
Some lenders allow borrower-performed work, often with limits, while others require a licensed contractor for some or all trades. Ask before you close, and expect inspections to verify the work either way.
What happens if the project goes over budget?
The holdback usually covers only the approved budget, so overruns come from your own cash or contingency. Some lenders will consider a budget revision, but extra funding is not guaranteed.
Get matched with a draw process that fits your project
Tell LoanFight about the property, scope and timeline. We review the scenario before connecting you with an appropriate lending partner.
Tell Us About Your Deal →Sources and review notes
Business-purpose treatment of credit to buy or improve non-owner-occupied property: CFPB, Regulation Z, 12 CFR 1026.3(a) and its official interpretation. Draw procedures described here are common practices among private business-purpose lenders as of October 2026, not any single lender’s rules; fees and timing are illustrative. All arithmetic was checked line by line.
Educational information only, not an offer, approval or financial, tax or legal advice. LoanFight is not a direct lender and does not set final loan terms. Equal Housing Opportunity.