On a fix-and-flip renovation loan, the rehab money is not wired to you at closing — it sits in a lender-controlled holdback and comes out in stages called draws, each one tied to work you have already completed and paid for out of pocket. You submit a draw request listing the budget line items finished since the last draw, the lender sends an inspector to confirm the work is actually installed, and the approved amount is wired to you, usually minus a retained holdback released only at the end. FHA's Section 203(k) draw form — the closest thing this corner of lending has to a public template — retains 10% of every draw until all work is complete and no mechanic's or materialmen's liens have been filed, and its instructions say the escrow release "(less 10% holdback) should occur within 48 hours" of acceptable receipt of all necessary documentation, per HUD. Private fix-and-flip lenders run the same shape with their own numbers: reimbursement after the fact is the norm, an inspection gates each release, and the biggest cost variable is whether your note charges interest on the balance you have actually drawn or on the full loan amount from day one.
How does the rehab holdback get funded at closing?
At closing, a fix-and-flip lender typically funds the acquisition piece in full and escrows the entire renovation budget as a separate holdback that it controls and disburses over time. Corporate Finance Institute describes the standard sizing convention for property flippers as a loan amount "generally based on 90% of the purchase price plus 100% of the repair costs," which is why investors are often surprised to find the rehab portion fully approved but entirely undelivered on day one.
The size of that holdback is set by two constraints at once. NerdWallet notes the maximum loan-to-value on fix and flip loans is "usually up to 90%," that some lenders go to "90% LTC or higher," and illustrates the after-repair-value test this way: "If a lender offers 70% ARV, it will lend a maximum of $140,000 on a home that will be worth $200,000 after repairs." Whichever test binds first caps your total proceeds, and the rehab holdback is the piece that flexes. If you are still sorting out which product you are being quoted, our fix-and-flip loan and ARV definitions cover the vocabulary lenders use in the term sheet.
Reimbursement draws vs. advance draws
Nearly every fix-and-flip renovation loan reimburses you after the work is finished rather than advancing money before a contractor swings a hammer, which means your own cash or your contractor's credit funds each stage first. That distinction drives cash planning more than almost any other draw term, because it sets how much working capital you need between the closing table and the first funded draw.
The reimbursement standard is written plainly into the federal template. HUD's Section 203(k) draw request instructions state that "Under no circumstances can any construction item be paid for without the work being acceptably installed (e.g., materials on site cannot be included in the draw request)," and separately that "Materials cannot be paid for until they have been acceptably installed." That rule catches investors who front a cabinet deposit and expect to recover it at the next draw: the deposit is a real cash outlay, but under a completion-based standard it is not fundable until the cabinets are hanging.
Advance or "forward" draws — money released before work is done — do exist in private lending, most often for a long-lead material order, and they are a negotiated exception rather than the default. HUD's program materials also show a common control on the reimbursement side: on a 203(k), the "[l]ender issues a two-party check made payable to borrower and contractor," a structure private lenders sometimes mirror when they want assurance subcontractors are actually getting paid.
How many draws do lenders allow, and is there a minimum?
The number of draws is a negotiated term rather than a regulated one, and it is usually the single most overlooked line in a fix-and-flip term sheet even though it governs how often you get your capital back. Lenders trade their own inspection cost against your cash cycle, so a cheaper-looking loan with fewer permitted draws can quietly require far more of your money to sit in the job at any given moment.
For a public benchmark on cadence, Bankrate tells construction borrowers to "[e]xpect four to six inspections during the project," and because inspections and draws travel together on renovation loans, that range is a reasonable starting expectation for a residential rehab of ordinary scope. HUD's draw request form carries a "This Draw Number" field and a "Previous Draw Totals" column that is "left blank" on the first draw inspection, confirming the design assumption of a repeating, cumulative sequence rather than a one-off release.
Minimums are set entirely by the lender — commonly a dollar floor per request or a minimum percentage of the holdback, so the lender is not paying for an inspection to release a trivial amount. Ask for both numbers in writing before you sign: the maximum number of draws included at no extra charge, and the smallest request that will be accepted.
An illustrative six-draw schedule for a $150,000 rehab budget
The table below is an illustrative example built to show the arithmetic of a staged release, not a schedule any particular lender offers and not a survey of market terms. The only sourced element is the 10% retention, which mirrors the holdback written into HUD's Section 203(k) draw request form; the milestones and percentages are a plausible sequencing, and your actual schedule gets built from your own scope of work.
| Draw | Milestone | % of $150,000 budget | Draw request | Released net of a 10% holdback |
|---|---|---|---|---|
| Draw 1 | Demolition, haul-off, temporary power | 10% | $15,000 | $13,500 |
| Draw 2 | Roof, windows, exterior envelope | 20% | $30,000 | $27,000 |
| Draw 3 | Rough plumbing, electrical, HVAC | 20% | $30,000 | $27,000 |
| Draw 4 | Insulation, drywall, interior doors | 20% | $30,000 | $27,000 |
| Draw 5 | Cabinetry, tile, flooring, trim | 20% | $30,000 | $27,000 |
| Draw 6 | Paint, appliances, punch list, final clean | 10% | $15,000 | $13,500 |
| Holdback release | Completion, final inspection, clear liens | — | — | $15,000 |
Read the last column first. Across six draws you request the full $150,000 but receive $135,000, and the remaining $15,000 arrives only after the job is finished and the lien position is clean — exactly the condition on HUD's form, where the borrower certifies understanding "that a 10% holdback will not be released until all work is completed and it is determined that no mechanic's and materialmen's liens have been placed on the property." Budget for that gap; it is a common reason an otherwise well-capitalized flip runs short in the final two weeks.
Key numbers and where they come from:
- Holdback retained per draw on an FHA 203(k) rehab escrow: 10% of each draw request (HUD Form HUD-9746-A)
- 203(k) escrow release target once documentation is acceptable: within 48 hours (HUD Form HUD-9746-A)
- Inspections to expect across a construction project: four to six (Bankrate)
- Typical fix-and-flip loan repayment term: six to 24 months (NerdWallet)
- Hard money sizing convention for flips: 90% of purchase price plus 100% of repair costs (Corporate Finance Institute)
- Standard 203(k) completion deadline: 12 months from closing (Bankrate)
- Fedwire Funds Service third-party cutoff: 6:45 p.m. ET each business day (Federal Reserve)
What goes in a draw request packet
A draw request is a paperwork event before it is a money event, and the packet you assemble is what an inspector and an underwriter both read before anyone authorizes a wire. Getting it right the first time is the highest-leverage thing an investor controls, because incomplete packets are rarely denied — they get set aside, and the clock simply never starts.
HUD's Section 203(k) draw request form is the most useful public model of what a lender wants, because it is explicit about structure. It lists 35 numbered construction items — masonry, siding, roof, windows, exterior painting, plaster/drywall, plumbing, electrical, heating, insulation, cabinetry, appliances, cleanup and miscellaneous among them — plus a totals row. Each item carries four columns: total escrow, previous draw totals with a percent-complete figure, the request for this draw, and an "Inspector/Lender Adjusted Amounts" column that gets filled in when someone cuts your number. There is also a field for a "Suggested Contingency Reserve Amount."
A private fix-and-flip draw packet contains the same elements under different letterhead:
- A scope of work broken into the same line items the lender approved at underwriting, with no renumbering between draws
- A completed draw request showing, per line item, the total budget, percent complete, previously drawn amount and the amount requested now
- Dated photographs of completed work, typically wide shots plus detail shots for each line item claimed
- Lien waivers from the general contractor and any subcontractor or supplier being paid from the draw
- Approved change orders for anything deviating from the underwritten budget — HUD publishes a separate "Change Order Request" form for exactly this reason
- Invoices and, where required, a title update confirming no intervening liens
On lien waivers there are four standard forms and they are not interchangeable. Wikipedia's summary of U.S. practice describes a conditional waiver on progress payment as "[t]he safest waiver for claimants," an unconditional waiver on progress payment that "releases all claimant rights through a specific date unconditionally," a conditional waiver on final payment, and an unconditional final waiver that "generally releases all rights of the claimant to place a mechanics lien on the owners property unconditionally." Which one your lender requires, and at which stage, should be settled before the first draw rather than argued about during the fourth.
How long does a draw take, and what does each one cost?
Turnaround is the sum of four separate clocks — your submission, the inspection, the lender's approval, and the payment rail — and only the last of the four is genuinely standardized across the industry. Investors who quote "draw turnaround" as a single number are usually describing the lender's internal approval step while ignoring the two steps that most often stall.
The one hard public benchmark comes from the federal side. HUD's 203(k) draw instructions state that after "the acceptable receipt of all necessary documentation, the escrow release (less 10% holdback) should occur within 48 hours." Read the condition, not just the number: those 48 hours begin when documentation is acceptable, which is why a packet missing one lien waiver can sit for a week without ever technically being late.
The payment rail is the predictable part. The Federal Reserve states that "[t]he Fedwire Funds Service business day begins at 9:00 p.m. eastern time (ET) on the preceding calendar day and ends at 7:00 p.m. ET, Monday through Friday, excluding designated holidays," and that "[t]he deadline for initiating transfers for the benefit of a third party (such as a bank's customer) is 6:45 p.m. ET each business day." An approval that clears at 5:00 p.m. ET on a Friday can still fund that day; one that clears at 7:30 p.m. cannot.
Per-draw costs vary by lender and are not standardized, so treat any specific figure quoted elsewhere as that lender's price rather than a market rate. What is structural is that two charges usually exist: an administrative draw fee and the cost of the inspection. HUD's draw request form makes the second visible, with a "Payable to the Fee Inspector" line in the release block and an "Inspection Fee" field on the rehabilitation inspection report. Ask for both in dollars, then multiply by the number of draws you expect to take — that product, not the fee itself, is the number that matters.
What actually delays a draw
Most draw delays are not underwriting decisions at all; they are documentation gaps and sequencing errors that the borrower is usually the last person to hear about. The pattern is consistent enough to design around, and nearly all of it reduces to claiming work an inspector cannot verify as installed.
Partial completion is the classic trap, and HUD's instructions include a worked example of how the cut is calculated: "If column 1 for Drywall is estimated for completion at $1,500, and the work is 50% complete, but a signed contract is for $1,200, then the Request for This Draw in column 3 cannot exceed $600." The lender pays against the lesser of the budgeted figure and the actual contract, prorated by completion — so an inflated line item does not produce a larger draw, it produces a reduced one and a conversation.
The rest of the list is mundane and preventable:
- Materials delivered but not installed, which the completion standard excludes
- A missing or wrong-type lien waiver from a subcontractor who has already been paid
- Work performed under a change order the lender never approved, pushing that line item off the approved budget
- Permits not pulled or municipal inspections not passed, leaving the inspector unable to sign off
- A title update showing an intervening lien — HUD's form addresses this directly, noting a lender "may make checks out in both the borrower and contractors name to ensure proper distribution of escrowed funds and to assure no mechanics or materialmens liens"
- Scheduling friction, since inspectors are third parties with their own calendars and a request filed late in the week often means an inspection early the next one
Dutch vs. non-Dutch interest: are you paying on undrawn money?
This is the term that most often separates two fix-and-flip quotes that look identical on rate, and it decides how much of your rehab holdback you pay to carry while it still sits with the lender. The distinction is real shorthand among private lenders, and it is almost never printed in bold on a term sheet — you have to ask for it by name.
Non-Dutch interest is the structure most borrowers assume they are getting: interest accrues only on the balance actually disbursed, so the rehab holdback costs nothing until it is drawn. That is the convention Bankrate describes for construction lending generally, noting that "your lender typically requires interest-only payments on the funds drawn to date during the construction phase." Dutch interest — sometimes called "full boat" — charges interest on the entire loan amount from day one, including the undrawn holdback.
Here is an illustrative calculation using the six-draw schedule above and a 1% monthly rate as an arithmetic placeholder rather than a market quote. It covers only the $150,000 rehab holdback and ignores the acquisition piece, which funds in full either way.
| Interest structure | Month 1 | Month 6 | Six-month total on the holdback |
|---|---|---|---|
| Dutch (interest on the full $150,000 from day one) | $1,500 | $1,500 | $9,000 |
| Non-Dutch (interest on the drawn balance only) | $135 | $1,350 | $4,725 |
In this illustration the structure alone is worth roughly $4,275 on a $150,000 holdback over six months — real money against a flip's margin, and it appears nowhere in the headline rate. Lenders charging Dutch interest sometimes price the coupon lower to compensate, so the right comparison is total interest dollars over your realistic hold, not the rate. Ask two questions: does interest accrue on the drawn or the full balance, and is there an interest reserve funded from loan proceeds that masks the payment until it runs out?
How this differs from a commercial construction draw
The mechanics rhyme, but a ground-up commercial construction draw runs on a different set of documents, a different cast of parties, and a materially longer clock than a residential rehab draw. Where a flip draw might involve you, a general contractor and a fee inspector, a commercial draw typically adds an architect's certification, a title company acting as disbursing agent, stored-materials provisions and statutory retainage.
The timelines diverge for the same reason. Bankrate notes that on FHA-backed renovation loans "the work must be completed within 12 months of closing" on a Standard 203(k) and "within nine months of closing" on a Limited 203(k), while NerdWallet puts fix-and-flip repayment terms at "six to 24 months" — both compressed against a commercial build. Corporate Finance Institute frames the broader hard money category as lenders expecting "their principal loan amount, plus interest, within one to five years." If your project sits on the commercial side of that line, our companion piece on construction draw schedules for commercial loans walks through the requisition process, retainage and the architect's role in detail.
Line up your draw terms before you close
Draw terms are far easier to negotiate while lenders are competing for your loan than after you have signed and demolition has already started on a house you now own. The number of included draws, the minimum request size, the inspection turnaround commitment and whether interest is Dutch or non-Dutch are all quotable terms — but only if you are looking at more than one quote.
That is what YieldStack is built for. A 5-minute submit puts your deal in front of a matching engine covering 5,000+ loan programs, returns the matched lenders — $0 upfront, with a fee of 0.50–1.00% only at closing. Compare the draw language side by side before you choose, not after.
The bottom line
Draw schedules are the operating system of a fix-and-flip loan. The rehab budget is approved at closing but delivered in pieces, each piece released against completed and inspected line items, and each release typically reduced by a holdback you recover only at the end — 10% of every draw under the federal 203(k) template HUD publishes. Control what you can: submit clean packets with photos and the right lien waivers, never claim uninstalled materials, get change orders approved in advance, and negotiate draw count, minimums and interest structure before you sign. The difference between a good draw schedule and a bad one rarely shows up in the interest rate. It shows up in how much of your own cash is sitting in someone else's drywall.