Will a lender finance my rehab budget?
Yes, most fix and flip lenders finance 100 percent of the rehab budget, held back at closing and released in three to six draws as work is completed and inspected, as long as the total loan stays within 80 to 90 percent of cost and 65 to 75 percent of after-repair value. You pay for each phase first and are reimbursed from the draw, so working capital for one phase is still required.
How rehab financing works
| Step | What happens |
|---|---|
| Budget review | The lender or its consultant checks the line-item budget against market costs |
| Holdback | The approved budget is held by the lender at closing |
| Work | You or the contractor complete a phase and pay for it |
| Draw request | Invoices, photos, and lien releases submitted by budget line |
| Inspection | Physical or video verification |
| Reimbursement | Funds wired, typically five to ten business days after the request |
Ranges vary by lender.
What is covered
- Labor and materials for the approved scope.
- Permits and inspection fees, usually.
- Contingency, when the lender includes one in the budget.
- Stored materials on site, with some lenders, for large items.
What usually is not
- Furniture, staging, and personal property.
- Work done before closing, unless documented and approved.
- Upgrades beyond the approved scope.
- Cost overruns above the budget, unless a reallocation is approved.
- Interest and carrying costs, which come from a separate interest reserve or your cash.
The working capital gap
Because draws reimburse completed work, you need cash for at least one phase at all times. On a $90,000 budget in four draws, expect about $22,000 in motion, plus five to ten days of draw turn time. Contractors who are not paid on time slow down. Match the contractor's payment schedule to the draw cycle.
Budgeting so the lender says yes
- Line items by trade: demo, roof, plumbing, electrical, HVAC, kitchen, baths, flooring, paint, exterior.
- Two bids for the major trades.
- A 10 percent contingency line.
- A finish level that matches the comps supporting the ARV.
- A schedule with the draw milestones marked.
Change orders
If the scope changes, the budget changes. Get the lender's approval for reallocations in writing before spending. Overruns without approval are your cost, and an out-of-balance budget can stop draws.
Interest on the holdback
Most lenders charge interest only on funds drawn, so the undrawn holdback costs nothing. A few charge on the full loan from day one. That difference is worth asking about before you sign.
How CommFi handles it
Our lending desk reviews the budget and the draw schedule against the contractor's payment terms before closing, so the cash flow works. It funds direct when it fits, and when a lender with faster draws or materials funding is the better match, the desk searches a database of 7,000+ lenders and the ones that fit compete for the file. Zero upfront fees.
Related reading
Related questions
- Will a flip lender pay for my renovation?
- Most finance 100 percent of the approved rehab budget as a holdback released in draws after inspection.
- Do I have to pay the contractor before the draw?
- Usually, yes. Draws reimburse completed work, so keep working capital for at least one phase.
- What rehab costs are not financed?
- Furniture and staging, unapproved upgrades, overruns above the budget, and work done before closing without approval.
- How long does a rehab draw take?
- Typically five to ten business days from the request, after inspection, with a fee of $150 to $300 per draw.
- Is interest charged on the rehab holdback?
- Most lenders charge interest only on drawn funds. Some charge on the full loan from day one; ask before closing.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.