Understanding Draw Schedules on Rehab Loans
How construction and rehab draw schedules work — how funds are released, the inspection process, interest on drawn funds, and how to avoid draw delays that stall a job.
Updated May 27, 2026
On any hard money or fix-and-flip loan that funds renovation, the rehab money isn't handed to you at closing. It's held in reserve and released in stages as the work gets done — through a draw schedule. Understanding how draws work is essential, because slow or mismanaged draws are one of the most common reasons a project stalls and blows its holding-cost budget. This guide explains the mechanics, the cash-flow implications, and how to keep your draws moving.
Why lenders hold the rehab budget back
When a lender funds a rehab, they're advancing money against work that hasn't happened yet. If they handed over the full budget at closing, they'd be exposed if the borrower didn't complete the work — or walked away. So instead, the draw schedule ties the release of funds to verified progress: you do the work, the lender confirms it, then releases that portion of the budget. It protects the lender's collateral and keeps the project on track.
At closing, the loan typically funds the purchase (or the as-is portion). The rehab budget sits in a holdback, drawn down over the project.
How a draw cycle works
The basic cycle repeats for each phase of the rehab:
- Complete a phase of work — e.g., demo, rough plumbing/electrical, drywall, kitchen and baths, finishes.
- Request a draw — submit a draw request, usually with photos, receipts/invoices, and a description of completed work.
- Lender inspects — either an in-person inspection, a third-party inspector, or (increasingly) photo/video verification.
- Funds release — once the work is verified, the lender wires that portion of the budget, typically within 1–3 business days.
Most loans allow a set number of draws (often 3–6) or unlimited draws with a small per-draw fee. Each draw releases the amount budgeted for the completed line items.
The cash-flow reality: you front the work
Here's the part that catches first-time rehabbers off guard: draws are reimbursements. You generally have to pay for (or complete) the work first, then get reimbursed by the draw. That means you need working capital to:
- Front the first phase before the first draw arrives.
- Bridge the gap between paying contractors and receiving each subsequent draw.
Budget this explicitly. A common mistake is bringing just enough for the down payment and points, then having no cash to actually start the job. Plan for at least the first phase out of pocket, plus a buffer.
Interest: on drawn funds or the full loan?
A crucial cost question: do you pay interest on the entire rehab budget from day one, or only on the funds you've drawn? Many hard money lenders charge interest only on drawn funds, which can save meaningful money over the project — you're not paying interest on rehab money still sitting in the holdback. Always confirm this with your lender; it's a real difference in cost. See hard money loan rates and points.
Some loans also include an interest reserve — the lender pre-funds your monthly interest payments from the loan — which preserves your cash during the build at the cost of borrowing slightly more.
A sample draw schedule
Every lender's schedule differs, but a typical $50,000 rehab might be structured like this:
| Draw | Work completed | Release |
|---|---|---|
| 1 | Demo, structural, rough mechanicals | $15,000 |
| 2 | Drywall, windows, exterior | $15,000 |
| 3 | Kitchen, baths, flooring | $12,000 |
| 4 | Paint, fixtures, final finishes | $8,000 |
The percentages and milestones are negotiated up front and written into the loan. Heavier early-phase costs (structural, mechanicals) are common, which is exactly why you need working capital to front the start.
How to avoid draw delays
Draw delays directly increase your holding costs (you're paying interest, taxes, and utilities while the job sits). To keep funds moving:
- Front-load your documentation. Submit clear before/after photos, organized receipts, and a tidy description of completed line items.
- Match draws to the schedule. Request draws for the phases the schedule defines; don't ask for finish-work funds before the rough-in is done.
- Schedule inspections promptly. Know how your lender inspects (in person vs. photo) and book it the moment a phase is complete.
- Keep your contractor aligned. Make sure your contractor understands the draw structure so the work is staged to match the milestones.
- Pick a lender with fast, reliable draws. This is a key selection criterion — a lender that takes a week to release funds can stall your whole timeline.
Why draw speed matters when choosing a lender
When comparing hard money lenders, the headline rate isn't the only thing that matters. On a rehab, draw speed and reliability can make or break your project economics. A lender with a slow or bureaucratic draw process can leave you carrying holding costs while you wait — eroding the profit the cheap rate was supposed to protect. Ask every prospective lender: How are draws requested? How do inspections work? What's the typical turnaround? See how to get a hard money loan for the full lender-vetting checklist.
Draws on ground-up construction
New construction loans use draw schedules too, but they're typically more structured — tied to standard construction milestones (foundation, framing, dry-in, mechanicals, finishes) with more formal inspections. The principle is identical: funds release against verified progress, and you manage cash flow around the reimbursement timing.
Bottom line
A draw schedule releases your rehab budget in stages against verified work, protecting the lender and keeping the project on track. The practical keys are simple: budget working capital to front each phase, confirm whether interest is charged only on drawn funds, document your progress cleanly, and choose a lender with fast, reliable draws. Get those right and draws are a non-event. Ready to fund a project? Get a quote with your purchase, rehab budget, and ARV.
This guide is general information for real estate investors, not financial advice. Draw structures and fees vary by lender and project.
Frequently asked questions
How does a draw schedule work on a rehab loan?
The rehab budget is held in reserve at closing and released in stages. You complete a phase of work, request a draw with photos and receipts, the lender inspects (in person or by photo), and that portion of the budget is wired — usually within 1–3 business days. The cycle repeats for each phase.
Do I have to pay for the rehab work before I get the draw?
Usually yes. Draws are reimbursements, so you generally complete or pay for a phase first, then get reimbursed. That's why you need working capital to front the first phase before the first draw arrives, plus a buffer to bridge later phases.
Do I pay interest on the whole loan or just drawn funds?
It depends on the lender. Many hard money lenders charge interest only on funds you've actually drawn, so you're not paying on rehab money still in the holdback. This can save meaningful money over a project — always confirm how your lender handles it.
How many draws do I get?
It varies — many loans allow a set number (often 3–6) tied to project milestones, while others permit unlimited draws with a small per-draw fee. The schedule and milestones are negotiated up front and written into the loan documents.
How do I avoid draw delays?
Submit clear before/after photos and organized receipts, request draws that match the defined schedule, schedule inspections promptly, keep your contractor aligned with the draw milestones, and choose a lender known for fast, reliable draws. Delays directly increase your holding costs.