How Are Rehab Funds Disbursed?

Rehab funds in a fix and flip loan are not handed to you in a lump sum at closing. They are disbursed in stages through a draw process as renovation work is completed and verified. Understanding this process is essential for managing your project cash flow.

The Draw Process

1. Submit a draw request: When a phase of renovation work is complete, you submit a draw request to the lender — typically including photos of completed work and receipts or invoices from contractors
2. Inspection: The lender schedules an inspector (usually a third party) to visit the property and verify the work described in the draw request
3. Approval and funding: Once the inspection is approved, funds are released — typically within 2–5 business days — directly to your account or to the contractor
4. Repeat: The process repeats for each phase of the renovation

Initial Draw Holdback

Some lenders hold back a portion of the rehab budget (often 10%) until the final inspection confirms all work is complete. This retention ensures the project reaches full completion before all funds are released.

Managing Cash Flow

Because draws are released after work is completed, you typically need some working capital to fund work in advance of each draw. Plan for a 1–2 week lag between completing work and receiving the draw. For large projects, this can mean carrying $20,000–$50,000 in bridge liquidity.

First Draw at Closing

Some lenders will fund a portion of the rehab budget at closing — particularly if initial demo or soft costs need to be paid immediately. This initial draw is available when the draw scope is well-documented.

What goes into a draw request packet

• A written list of work completed in the phase
• Dated photos showing the work
• Contractor invoices or receipts
• Permit or inspection sign-offs, where required
• Signed lien releases from contractors you have paid, as your lender requests

For California mechanics lien practice, consult an attorney.

A sample draw schedule (illustrative example, not a quote)

Say the rehab budget is $100,000 and the lender holds back 10% until final inspection. That is $10,000 held and $90,000 available in progress draws. Five equal draws would be $18,000 each ($90,000 ÷ 5), and the final $10,000 is released once everything is complete and verified. If each draw takes 1–2 weeks from completed work to funds, plan to carry the next phase yourself in the meantime. Ask whether inspection fees apply to each draw and add them to your budget.

Keeping draws moving

1. Agree on a draw schedule with your contractor before work starts, matching the lender’s phases.
2. Submit a request as soon as a phase is truly finished, not half done.
3. Be at the property or arrange access for the inspector.
4. Keep photos consistent, with the same angles each time.

Common draw mistakes

• Paying a contractor in full before the lender’s inspection confirms the work
• Submitting photos that do not clearly match the phase described
• Running two phases at once, so neither is complete enough to inspect
• Forgetting that the final holdback is released only after the last inspection

Frequently asked questions

Is the money paid to me or to the contractor?

The page notes funds go to your account or directly to the contractor. Ask how your lender handles this and which one reduces risk for your project.

What if the inspector says work is not complete?

The draw is generally delayed until the issue is corrected and reinspected. Ask your contractor to finish the phase fully before you submit, to avoid extra inspection fees.

Can I get paid for my own labor?

Policies differ. If you plan to do some work yourself, ask before closing whether it counts toward draws.

Related guides

• How a fix and flip loan is structured
• What happens when a project runs over
• How the loan amount is calculated
• What a fix and flip loan is
• Rates and points for fix and flip loans