Hard money draws explained: holdbacks, inspections and timing
By Austin Frangoules | Updated | 7 min read
With most fix and flip loans, the lender holds back the rehab money and releases it in draws after the work is done. You pay the contractor, request a draw, an inspector confirms the work, and the lender wires the money back. Plan cash for the gap, and know whether you pay interest on the whole loan or only what you have drawn.
The holdback
When a lender funds 100% of the rehab, that money is not handed to you at closing. It is set aside as a rehab holdback. The purchase part of the loan funds at closing, and the holdback is released in pieces as the work gets done.
- Purchase price
- $160,000
- Lender funds 90% of the price at closing
- $144,000
- Rehab budget, held back
- $45,000
- Total loan
- $189,000
These are the planning terms in the free hard money calculator. Your lender's term sheet decides the real split.
How a draw works, step by step
- Agree the draw schedule. Before closing, the lender approves your scope of work and budget, often grouped into phases like demo, rough-in, drywall and finishes.
- Do the work and pay for it. Draws are usually paid in arrears, meaning after the work is in place. Your contractor will want to be paid sooner, so you float the gap.
- Request the draw. Send the lender a draw request with the line items finished, photos and often invoices or lien waivers.
- Inspection. The lender sends an inspector, or accepts a photo or video inspection, to confirm the work is complete.
- Funding. The lender wires the approved amount, less any draw fee. Some lenders also run a title update before each draw.
Fees and timing to plan for
| Item | Typical range |
|---|---|
| Draw or inspection fee | About $100 to $300 per draw (the calculator uses $150) |
| Number of draws | 3 to 6 on a typical flip; more for a big rehab |
| Time from request to wire | A few business days to about two weeks |
| Paid | In arrears, for work completed |
Interest on drawn funds vs Dutch interest
This is the biggest hidden cost difference between lenders. With interest on drawn funds, you pay interest on the purchase money from day one and on each draw from the day it funds. With Dutch interest, you pay interest on the full loan, holdback included, from closing.
- Interest on drawn funds
- About $9,364
- Dutch interest on the full $189,000
- $10,395
The gap grows with a bigger rehab, fewer early draws and a longer hold. Run your own terms in the [hard money loan calculator](/hard-money-loan-calculator).
How to get draws paid faster
- Match your contractor's payment schedule to the lender's draw schedule. If the lender pays on phases, pay the contractor on the same phases.
- Send complete packets. Line items, clear photos of each one, invoices and lien waivers. Missing pieces are the most common delay.
- Request on time. Do not wait until everything is done. Request as each phase finishes so your cash cycles.
- Keep a cash cushion. Plan for one full draw of your own money in the gap, plus contingency.
- Collect lien waivers. A conditional waiver with the request and an unconditional waiver once paid protects you and the lender.
Questions
Do hard money lenders pay draws up front?
Usually not. Most pay in arrears after an inspection confirms the work. Some allow a first draw at closing for materials or a deposit. Ask before you sign.
What is a rehab holdback?
The rehab part of the loan, held by the lender and released in draws as the work is completed.
What does Dutch mean on a hard money loan?
Interest is charged on the full loan amount, including undrawn rehab funds, from closing. Non-Dutch loans charge interest only on money drawn.
For education only. Not legal, tax, lending or investment advice. Loan programs and guidelines change and vary by lender; confirm current terms with your lender.