Rehab Draws Explained: How Renovation Funds Get Released

On most Fix & Flip and New Construction loans, the renovation money isn't handed over at closing. The lender holds it back and releases it in stages, called draws, after you finish work and it's verified. You usually pay for each stage first and get reimbursed.

The basic cycle

1. You complete a portion of the work in your approved budget.
2. You submit a draw request, usually with photos, invoices or a progress list.
3. The lender verifies the work, by inspection or by reviewing what you sent.
4. Funds are released for the completed items, then the cycle repeats.

The holdback protects both sides. The lender knows money only goes into finished work. You know the full budget is reserved for the project.

How much of the budget a loan covers depends on the program. RSC Private Lending's Fix & Flip loans fund up to 100% of rehab, and its New Construction loans up to 100% of construction, within each program's limits on total cost and ARV.

How draws are organized

Draws tie back to the scope of work and budget you submitted at underwriting. Lenders commonly structure them one of three ways:

• By line item: each budget category is paid as it's done, like roof, HVAC or flooring.
• By phase: demo, rough-in, drywall, finishes.
• By percentage complete: funds released as the overall project hits set milestones.

Know which approach your loan uses before you hire your contractor, so payment terms line up.

Plan the cash between draws

Because you front the cost, you need working capital on top of the cash you bring to closing.

Example: Your approved rehab budget is $90,000. The first phase, demo and framing, costs $20,000. You pay your contractor, submit the draw and wait for funds. If the next phase starts before that money arrives, you may be carrying $30,000 or more out of pocket at the same time. Keep enough cash on hand to cover at least one or two phases without a draw.

What slows a draw down

• Photos that don't clearly show the finished work
• Work that doesn't match the approved scope
• Changing the plan without telling the lender
• Requesting payment for items that are only partly done

A change order is normal. Just send the update before you build it, not after.

What this means for you

Draws are predictable once you know the rules. Line up your contractor's payment schedule with your draw structure, keep a cash buffer, and submit clean, complete requests as soon as each phase wraps.

Planning a renovation? Send RSC Private Lending your deal and scope of work for a term sheet in 24 hours, and ask how draws would be set up on your project. Subject to underwriting.