How Rehab Money Gets Paid Out on a Fix and Flip Loan

On most fix and flip loans, the renovation budget is not handed over at closing. The lender holds it back and releases it in stages once work is finished and verified. In practice, you usually pay for the first chunk of work, then get reimbursed through a draw.

The holdback

At closing, the loan funds the purchase. The rehab portion sits in a holdback, sometimes called an escrow or construction reserve. It is part of your loan, but it is released only as the project moves forward.

How much of the rehab a loan covers depends on the lender. RSC Private Lending's Fix & Flip loans can fund up to 100% of the rehab budget, within the program's limits of 95% of total cost and 75% of ARV.

The standard approach: progress draws

Most lenders use a draw schedule tied to your scope of work. A typical cycle looks like this:

1. Your contractor completes a phase, such as demo and rough framing.
2. You submit a draw request with invoices and photos.
3. The lender orders an inspection to confirm the work.
4. Funds for the verified work are released, usually by wire.
5. Repeat until the job is done.

Example (illustrative only): On a $50,000 rehab, you might pay $12,000 for demo, plumbing rough-in and electrical rough-in. Once the inspector signs off, the lender reimburses that $12,000, which helps fund the next phase. You need enough cash to float each phase until the draw clears.

Other structures you may see

• Upfront advance. Some lenders release a slice of the rehab budget at closing so materials can be ordered and crews can start right away. This is less common and usually limited.
• Pure reimbursement. You pay for all work first and get repaid after each inspection. This favors investors with plenty of cash or a credit line.

Fees and timing

Each draw usually involves an inspection, and inspections often carry a fee. Turnaround from request to funds varies by lender and inspector availability. Ask about both before you close so you can plan your cash flow.

Habits that keep money moving

• Write a detailed, line-item scope of work before closing
• Keep every invoice and receipt organized by line item
• Hold enough cash to cover at least one phase ahead of each draw
• Coordinate with your contractor so work is ready when the inspector shows up
• Submit change orders before, not with, your draw request

What this means for you

Rehab financing follows progress. Plan your cash so you can pay for each phase before it is reimbursed, keep your paperwork clean, and your draws will keep pace with your crew.

Want to talk through how rehab funding would work on your project? Send RSC Private Lending your scenario and scope of work for a term sheet in 24 hours. All loans are business-purpose and subject to underwriting.