How Rehab Draw Schedules Work on Hard Money Loans
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Key takeaways
- Rehab funds are held back at closing and released after inspected progress, usually 3–6 draws per project.
- Most lenders reimburse completed work; plan to float 20–30% of the budget as working capital.
- Turnaround is 2–5 business days from request to wire at good lenders; inspections cost $150–$300.
- Clear line-item budgets, photos and lien waivers speed every draw.
The holdback
At closing, the lender funds the acquisition portion and sets the approved rehab budget aside as a holdback. Interest may or may not accrue on undrawn holdback — a key question to ask. The budget is broken into line items (demo, roof, framing, plumbing, electrical, HVAC, drywall, kitchen, baths, flooring, paint, landscaping) with dollar amounts that become the schedule of values for draws.
Reimbursement vs. advance draws
Most residential hard money lenders use reimbursement draws: you pay for work, submit a draw request, an inspector confirms completion, and the lender wires funds — usually within 1–2 business days of the inspection. A minority offer advance draws or fund the first draw at closing for materials. Construction lenders commonly use a hybrid with a retainage (5–10%) held until completion. Know which model you have before you sign the contractor agreement; paying a contractor for work the lender later disallows is a classic cash crunch.
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A typical draw cycle
- Work completes on one or more line items.
- You submit a draw request through the lender's portal with photos, invoices and (for construction) lien waivers.
- The lender orders an inspection — a third-party inspector visits within 1–3 days, or a virtual inspection via app at tech-forward lenders.
- The inspector reports percent complete per line item.
- The lender approves and wires, netting the inspection fee.
Plan on 3–6 draws per flip and 6–12 per ground-up build. Each costs $150–$300 (residential) to $400 (construction) and takes 2–5 business days end to end.
Managing cash flow
- Keep working capital equal to the largest expected draw — commonly 20–30% of the rehab budget.
- Sequence work so inspections can verify multiple line items per visit.
- Negotiate contractor payment terms that mirror the lender's draw schedule.
- Use materials-first draws where available to fund big-ticket purchases (cabinets, windows).
- Avoid change orders without lender sign-off; unapproved scope is not reimbursable.
Common draw problems
- Budget line items too coarse (“interior: $40,000”) — inspectors cannot verify partial completion.
- Missing permits for permitted work; lenders will not fund unpermitted structural or mechanical work.
- Contractor lien risk — collect conditional and unconditional lien waivers with each payment.
- Scope creep that exhausts the holdback before the finish line; keep a 10% contingency line in the approved budget.