How do rehab draws work on a hard money loan?
On a hard money rehab loan the renovation budget is held back at closing and released in draws, usually three to six over the project, after an inspector confirms the work is in place. Each draw typically funds within five to ten business days of the request and carries a fee of $150 to $300, so you front each phase of work and get reimbursed.
How the cycle works
- Closing. The purchase funds; the rehab budget stays with the lender as a holdback.
- Work. You or your contractor complete a phase and pay for it.
- Draw request. You submit invoices, photos, and lien releases against the approved budget.
- Inspection. The lender sends an inspector or asks for a video walkthrough.
- Funding. The lender wires the reimbursement, typically five to ten business days after the request.
- Repeat until the budget is exhausted.
| Item | Typical range |
|---|---|
| Number of draws | 3 to 6 |
| Draw fee | $150 to $300 each |
| Turn time | 5 to 10 business days |
| Inspection | Physical or video |
| Reimbursement basis | Completed work only, not materials on site with most lenders |
| Interest | Charged on drawn funds only with most lenders; some charge on the full loan from day one |
Ranges vary by lender.
The cash flow problem
Because draws reimburse completed work, you need working capital to pay the contractor before the first draw arrives. A $100,000 budget in four draws means roughly $25,000 of your own cash in motion at all times, plus the draw turn time. Investors who miss this end up with a stalled contractor in week three.
Keeping the schedule moving
- Match draw phases to the contractor's payment schedule.
- Submit draw requests the day a phase finishes, with clean photos and invoices.
- Get lien releases from subcontractors as you go.
- Ask whether the lender funds materials delivered on site; some do for large items like cabinets and HVAC.
- Keep the budget line items accurate; reallocations between lines often need approval.
Change orders
If the scope changes, the lender's budget changes. A finished kitchen that cost $8,000 more than budgeted comes out of your pocket unless the lender approves a reallocation from another line. Get approval in writing before you spend.
Interest on drawn funds
Most lenders charge interest only on the funds actually drawn, which makes the early months cheaper. A few charge interest on the full loan amount from day one, which is a meaningful cost difference. Ask before you sign.
How CommFi handles it
Our lending desk reads the budget and the draw schedule with you 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
- How do rehab draws work on a hard money loan?
- The rehab budget is held back at closing and released in three to six draws after an inspector confirms the work is complete.
- How long does a draw take to fund?
- Typically five to ten business days from the request, with a fee of $150 to $300 per draw.
- 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.
- 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.
- What if my rehab costs more than the budget?
- The overage is your cost unless the lender approves a reallocation from another line. Get change orders approved in writing.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.