How Construction and Rehab Draws Work

On fix and flip and new construction loans, the renovation or build money usually isn't handed over at closing. It's held back and released in stages, called draws, once each phase is done and checked. That protects the lender and keeps the project funded in step with progress. Here is how it generally works and how to keep your money flowing.

The basic cycle

1. Draw schedule set at closing. Your approved budget and scope of work are split into phases, such as demolition, framing, rough-ins, drywall and finishes.
2. Work gets done. Most draws reimburse completed work, so you or your contractor typically front the cost of each phase.
3. You request the draw. You submit the request with supporting documents.
4. Work is verified. The lender confirms completion, by a site inspection or by photo and video review, depending on the lender and project.
5. Funds are released. Money is wired to you or your contractor for that phase, less any inspection or draw fee the lender charges.

Then you repeat until the project is done. Verification methods, fees and turnaround times vary by lender, so ask about each before you close.

What to submit with a draw request

• The line items from the approved budget you're requesting
• Clear, dated photos of the completed work, room by room
• Contractor invoices and lien waivers, if required
• Permits and passed inspections, where they apply
• An updated budget showing spent to date and remaining

The single most important rule: match the request to the approved scope. If the request doesn't line up with the budget lines, it slows down.

How many draws to expect

It depends on the project. A cosmetic flip might have a few draws. A ground-up build typically has more, tied to construction milestones. Larger budgets and more phases mean more draws.

Example, round numbers only. A $60,000 rehab budget split into three draws:

• Draw 1, $20,000: demo, framing changes, rough plumbing and electrical
• Draw 2, $25,000: drywall, windows, HVAC, cabinets
• Draw 3, $15,000: flooring, paint, fixtures, final cleanup

Your contractor needs enough cash to complete each phase before reimbursement. If they can't carry $25,000 for a few weeks, plan for that before the first day of work.

Tips for smooth draws

• Hire contractors who understand draw-based funding and can document their work
• Take photos as you go, not just at the end
• Submit promptly when a phase is done
• Tell your lender early if scope, budget or timeline changes. Reallocating between line items is often possible with approval.
• Keep your contingency in the budget so surprises don't stop the job

What this means for you

Draws reward organized borrowers. Build a realistic scope, line your contractor up for draw-based payment, document as you go, and keep your lender informed. At RSC Private Lending, Fix & Flip loans can cover up to 100% of rehab and New Construction loans up to 100% of construction, within each program's total-cost and ARV limits.

Planning a rehab or build? Ask RSC Private Lending how draws would work on your project. Subject to underwriting.