Rehab Draw Schedules, Explained

Why do hard money loans use draws?

Renovation loans are riskier than loans on finished property, because the value depends on work that has not happened yet. A draw schedule protects the lender by tying money to completed work, and it protects you by keeping the project on a budget and forcing the contractor to hit milestones.

Draws also prevent the classic failure mode of a renovation: a contractor who takes money upfront and disappears. By releasing funds only for completed, inspected work, the draw schedule keeps the money and the progress moving together.

How does a typical draw schedule work?

At closing, the lender funds the purchase and often releases an initial draw to start the work, such as demolition or materials. After that, you request draws at milestones. A common sequence is rough-in, drywall, finishes and final, though the exact milestones depend on the scope of work and the lender.

Each draw request usually includes a scope-of-work line item, a dollar amount and sometimes photos or invoices. The lender orders an inspection, and once the work is verified, the next portion is released. A final draw is often held until the project is complete and any punch-list items are resolved.

Which paperwork keeps draws moving?

• A detailed scope of work broken into line items, with a budget for each.
• Contractor bids or a contract matching the scope.
• Draw requests tied to specific line items, with dollar amounts.
• Invoices or receipts for materials and labor, where the lender asks for them.
• Inspection results confirming the completed work.

Why does the contractor relationship matter?

The draw schedule runs on your contractor’s ability to hit milestones and produce clean paperwork. A contractor who over-bills, under-documents or falls behind will stall the draws and, with them, the project. Vet the contractor, agree on a payment schedule that matches the lender’s draws, and keep the scope-of-work changes in writing.

Changes to the scope are the other common friction point. When the scope changes, the budget and the draw schedule should change with it, in writing, so the lender can re-verify the numbers. See the fix-and-flip financing guide for how draws fit the larger plan.

Why should you plan the exit before the first draw?

A draw schedule only matters because the loan has an exit: a sale or a refinance. Before the first draw, know which exit you are running and line it up. If you plan to keep the property, renovate to meet the property requirements for a DSCR refinance. Compare expected rent with a current lender payment quote using the DSCR exit guide early. Hard Money Loan is a Loan Daddy LLC brand; Loan Daddy LLC is a mortgage broker, not a lender.

How can you write a scope of work for draw inspections?

The scope of work is the document the whole draw schedule hangs on, so it is worth writing carefully. Break the project into line items a stranger could inspect: demolition, framing changes, plumbing rough-in, electrical rough-in, roof, windows, drywall, cabinets, flooring, paint, fixtures and exterior work. Give each line a dollar amount and, ideally, a contractor bid behind it. A line that says only “kitchen” is hard to inspect and hard to release funds against.

Group the line items into milestones that match how the work actually happens on site. If the contractor plans to do rough-in plumbing and electrical together, put them in the same draw. When the milestones on paper match the sequence on site, inspections go more smoothly and the money keeps up with the work.

How can you manage cash between draws?

Draws are paid after work is completed and inspected, which means someone has to pay for that work first. Usually that is the investor, the contractor or both. Before closing, agree with your contractor how they will be paid between draws and how long they can float materials and labor. Keep your own reserve to cover at least one milestone, so a slow inspection or a disputed line item does not stop the job.

Build in time for the draw itself: scheduling the inspection, reviewing the report and releasing funds. Ask early how a given lender handles draw requests, how inspections are ordered and what documentation it expects, because those practices vary from lender to lender.

What should a draw request include?

• Reference the line items and the milestone you are drawing against.
• Request only for work that is finished and visible to the inspector.
• Attach invoices, receipts and photos where the lender asks for them.
• Collect lien waivers from the contractor and major subcontractors where required.
• Note any approved scope changes and the updated budget.
• Make sure the property is accessible on the inspection date.