Draw Schedules on Fix-and-Flip Loans: How Renovation Capital Actually Flows

Christopher Kim

Mortgage Banking Lead, MB4I

How Draw-Based Financing Works

Fix-and-flip loans are not disbursed as a single lump sum. The acquisition portion funds at closing, but the renovation budget is released in stages — called draws — as work is completed and verified. This structure protects both the lender and the borrower: the lender knows capital is being used for its intended purpose, and the borrower is not forced to fund rehab costs out of pocket and wait for reimbursement.

Understanding how draws work before you start your project prevents cash flow gaps, contractor disputes, and timeline delays. This article covers the typical draw schedule, inspection requirements, and strategies for keeping your project moving.

Typical Draw Schedule

Draw schedules vary by lender and project, but most fix-and-flip loans follow a milestone-based structure. Here is a common 4-draw schedule on a $150,000 rehab budget:

• Draw 1 — Demolition and rough work (20-25%): Released after demolition is complete, framing is done, and rough plumbing/electrical/HVAC is installed. This is the 'bones' of the project.
• Draw 2 — Drywall and exterior (25-30%): Released after drywall is hung and finished, exterior work (roofing, siding, windows) is complete, and insulation is installed.
• Draw 3 — Finishes (25-30%): Released after flooring, cabinets, countertops, tile, paint, and fixtures are installed. The property should be substantially complete.
• Draw 4 — Final (10-15%): Released after final inspections, punch list items are resolved, and the property is ready for listing or occupancy. This final draw often includes a contingency holdback.

The Inspection Process

Before each draw is released, the lender orders an inspection — typically a third-party inspector or appraiser who visits the property, photographs completed work, and verifies that the scope matches the draw request. The inspection report is reviewed by the lender, and if the work is verified, the draw is funded within 24-72 hours.

Inspection costs ($150-$300 per inspection) are usually paid by the borrower, either out of pocket or deducted from the draw amount. Some lenders bundle inspection costs into the loan; others pass them through at cost.

The inspection is not adversarial. It is a verification step — does the work match what was requested? If the inspector finds incomplete work, the lender may release a partial draw (for the completed portion) and hold the remainder until the remaining work is finished.

How to Keep Your Project on Track

Draw delays are one of the most common causes of project timeline overruns. Here are strategies to keep capital flowing smoothly:

• Schedule inspections proactively: Do not wait until the draw is needed to schedule the inspection. When you are 80% through a milestone, contact the lender to schedule the inspection so it happens as soon as the milestone is complete.
• Document completed work: Take your own photos of completed work before the inspector arrives. If there is a dispute about what is done, your documentation supports your draw request.
• Align your contractor with the draw schedule: Make sure your contractor understands which work must be complete for each draw. If they complete work out of order, you may not be able to request a draw even though significant work has been done.
• Keep a contingency: Most lenders require a 5-10% contingency in the rehab budget. Do not treat this as optional spending money — it is for overruns. If you do not use it, it is released in the final draw.
• Communicate delays early: If a milestone will be delayed (material shortages, contractor scheduling, weather), tell your lender immediately. Most lenders will work with you on timing if you communicate proactively.

Common Draw Schedule Pitfalls

These are the issues we see most often from borrowers who are new to draw-based financing:

Front-loading work without matching draws: If your contractor does all the expensive work first (kitchen, bathrooms) but the draw schedule releases funds based on milestones (demolition, drywall, finishes), you may run out of cash before the next draw. Align your contractor's work order with the draw schedule.

Requesting draws before milestones are complete: If you request a draw before the milestone work is done, the inspection will find incomplete work and the draw will be delayed or reduced. Wait until the milestone is genuinely complete.

Underestimating inspection turnaround: Inspections take 24-72 hours, and funding takes another 24-48 hours after approval. If your contractor expects payment the day after completing a milestone, you need to set expectations — there is a 3-5 day lag between milestone completion and draw funding.

Ignoring the final draw holdback: The final draw often includes a 10% holdback that is only released after the property is listed or a final appraisal confirms the ARV. Plan your cash flow so you are not dependent on the final draw to complete the last items.

MB4I's Draw Process

At MB4I, we structure draws around your project's actual milestones, not a generic template. If your rehab is front-loaded (kitchen and bathrooms first), we can structure the draw schedule to match. If you have a complex project with multiple phases, we can create a custom draw schedule with more granular milestones.

Our inspections are typically completed within 48 hours of request, and draws are funded within 24 hours of inspection approval. We do not charge inspection markups — you pay what the inspector charges, nothing more.

If you have a fix-and-flip project and want to discuss draw scheduling before you apply, submit an inquiry. We will review your project scope and propose a draw schedule that fits your timeline.