Rehab Loan Draw Schedule Explained: Stages, Inspections, and a Checklist

How do rehab loan draws work?

Draws are where good flips run into cash trouble. The money exists; it just arrives after the work is done. Planning for that gap is the job.

1. Holdback at closing. The renovation budget is not handed to you on day one. It is held by the lender.
2. You (or your contractor) complete work. Usually paid for first from your cash or the contractor's credit.
3. You submit a draw request. It lists completed budget lines with supporting photos and invoices.
4. Verification. The lender confirms the work, often with an inspection.
5. Funds released. The draw is wired, and you pay the contractor or reimburse yourself.

The live Axelrad guide on cash to close and rehab draws puts it plainly: some facilities reimburse eligible work after evidence of completion and an inspection, so confirm the actual arrangement before you commit to a contractor payment schedule.

How is interest handled on draws?

Axelrad's fix-and-flip page says borrowers pay interest only on funds drawn, not the total loan amount. For draw timing, any draw fees, and how much of the rehab budget is financed, check the product page and your term sheet, since they depend on the program.

Sample draw schedule

Example (hypothetical numbers) for an $80,000 rehab. Your lender's stages and percentages may differ.

Fewer, bigger draws mean longer gaps between payouts. More, smaller draws mean more paperwork but less cash tied up. Choose a rhythm your crew and your bank account can handle.

Draw request checklist

Tick each item before you submit a draw.

How do you avoid cash gaps between draws?

Map your contractor's payment schedule against your draw schedule before you sign the contractor agreement.

Your running cash need each week equals the contractor payments due so far minus the draws received so far, and your peak cash need is the highest of those weekly figures. The planner covers eight weeks; for a longer project, run it again and enter your week 8 running cash need as the week 1 payment.

Example (hypothetical numbers): the contractor wants $10,000 to start and $16,000 at completion of stage 1. Draw 1 ($16,000) arrives after inspection. You need to fund $26,000 before the first draw, then recover $16,000 of it. Your peak cash need in that stage is $26,000, not zero.

Ways to shrink the gap:

• Negotiate contractor payments due on completion of stages, matching draws
• Ask whether any rehab money can be advanced at closing
• Submit draw requests the day a stage is done
• Keep stages small enough that a single payment isn't huge

What slows down draws?

• Requests for work that isn't finished
• Photos that don't show the work clearly
• Line items that don't match the budget
• Unapproved change orders
• No access for the inspector
• Missing permit sign-offs where required

How do change orders affect draws?

A change order alters the scope or cost of the work after the budget was approved. Because draws are tied to approved budget lines, a change that isn't approved can leave completed work with no line to draw against. Before your contractor does extra work, get the change in writing with a price, decide where the money comes from (contingency, a scope cut elsewhere, or your cash), and ask your lender how to reflect it in the budget. Doing it in that order keeps future draws moving.

Example (hypothetical numbers): demo reveals rotted subfloor in a bathroom, adding $3,500. You approve a written change order, move $3,500 from your contingency line to a new "subfloor repair" line, and notify the lender before submitting the stage 2 draw that includes it.

What should your contractor agreement say about draws?

Align the contract with the draw schedule. State that payments are due upon completion and verification of defined stages, list what "complete" means for each stage, and require invoices and lien waivers where appropriate. Avoid large upfront deposits that your draws can't reimburse until weeks later. Have a real estate attorney review the agreement for your state's lien and payment rules. A contractor who understands the draw process up front is far less likely to stop work while waiting for money.

Who orders the draw inspection?

Usually the lender, through its own inspector or a third-party service, though practice varies. Ask at the start: who schedules it, how much notice they need, and whether photos can substitute for a site visit on smaller draws.

Key takeaways

• Rehab money is held back and released after work is completed and verified.
• Build your draw stages around the order of construction.
• Map contractor payments against expected draws to find your peak cash need.
• Clean, complete draw requests are the fastest way to get paid.

Plan draws before you close

Bring your budget and proposed draw stages when you submit your deal. Program details are on the fix-and-flip loan page.