How Fix and Flip Draws Work, Step by Step

A fix and flip draw is a payment of renovation funds released to you after a portion of the work is finished and verified. The lender does not hand over the full rehab budget at closing. It holds that money in reserve and pays it out in installments, usually after an inspection confirms the work was done.

That is the short version. The practical version matters more, because the draw schedule decides how much cash you need on hand during the project.

What happens at closing and what happens after?

At closing, a fix and flip loan typically funds in two parts. The first covers the purchase, and sometimes a share of closing costs. The second is the rehab holdback, which is the renovation budget set aside by the lender and released through draws.

Lenders usually size the loan against a few ratios. LTC (loan-to-cost) compares the loan to your total purchase and rehab cost. LTV (loan-to-value) compares it to the property's value. On rehab deals, lenders often look at ARV (after-repair value), the estimated value once work is complete. Exact limits vary by lender and program, so check the program page for current terms rather than assuming a number.

How does a draw request actually work?

The sequence is fairly consistent across lenders, even if the paperwork differs.

1. Approve the budget. Before closing, you submit a scope of work with line items and costs. The lender reviews it and ties each item to the holdback. This budget becomes the reference for every draw.

2. Do the work. Most borrowers pay contractors first, using their own cash or the funds they have available. This is the part that surprises people. A draw generally reimburses completed work. It is not an advance.

3. Submit a request. You tell the lender which items are complete and send supporting material such as photos, invoices, or contractor receipts.

4. Inspection. The lender sends an inspector, or reviews dated photos or a video walkthrough, to confirm the work matches the request. Some lenders use a third-party inspector and charge a fee for each visit.

5. Release. If the work checks out, the lender releases funds for that portion of the budget. Some hold back a small percentage of each draw until the project is complete.

How much cash do I need to carry between draws?

More than most first-time flippers plan for. Contractors want deposits, materials get bought up front, and inspections and funding take days, not hours. Your working capital needs to cover the gap between finishing a stage and getting reimbursed.

Here is a labeled hypothetical. Suppose a rehab budget is split into four stages. You finish demolition and framing repairs, then pay the crew and suppliers. You request a draw, wait for the inspection, and funding arrives a few business days later. During that wait you are funding the next stage too, because stopping the crew costs time. Multiply that by four stages and the cash need is real, even though the lender is covering the budget on paper.

Interest is also running the whole time. On many loans, interest is charged on the amount drawn, not the full holdback, so early on the monthly payment is lower. Confirm how your loan calculates it.

What should I have ready before the first draw?

• A line-item scope of work with costs, matching the approved budget
• Signed contractor agreements and contractor license or insurance details where required
• Permits for work that requires them
• Dated photos of each stage, before and after
• Invoices and receipts for completed items
• Lien waivers from contractors or suppliers, if the lender asks for them
• Proof of property insurance that covers a vacant or under-renovation property

Why do draws get delayed or denied?

Most problems are avoidable and fall into a few groups.

Work does not match the budget. If you spend rehab money on an item that was not in the approved scope, the lender may not reimburse it. Changes are usually fine if you ask first and get the revised budget approved.

Incomplete work. Lenders pay for finished items. A kitchen that is half installed may be paid at a partial amount, or not at all until it is done.

Thin documentation. Photos without dates, missing invoices, or unclear contractor details slow the review.

Permit or code problems. An inspector who sees unpermitted work, or a municipality that stops the job, can freeze draws until it is resolved.

Budget overruns. If costs climb past the holdback, the lender will not usually fund the difference. You cover it, or the deal gets restructured, for example by reducing scope or adding equity.

Liens. An unpaid contractor can file a lien. Lenders check title between draws on some loans, and a lien can stop funding.

Can I make the process smoother?

Yes, and mostly through preparation. Build the budget with a contingency line so a small overrun does not stall the project. Ask the lender how many draws are allowed, how long inspections take, and what fees apply per draw. Sequence the work so each stage is clearly complete when you request payment. And keep your contractor's invoices aligned with the lender's budget categories.

Draw rules differ by lender, so read the construction holdback section of your loan documents before you sign. For current program terms and how the process is set up, see the fix and flip loan page.