Guide
How draws actually work
The rehab holdback is released against completed work. The timing of that process decides how much of your own cash you have to float, and for how long.
Your rehab budget is funded in arrears. You do the work, you request a draw, an inspector confirms it, the lender wires. Understanding the cycle time is the difference between a smooth project and one that stalls waiting for money.
The cycle
Complete a stage of work
Defined by your draw schedule, which is derived from the budget you submitted. This is why a vague budget produces a painful draw process.
Request the draw
Usually a form plus photographs, sometimes contractor invoices and lien waivers. Some lenders require conditional waivers before funding and unconditional after.
Inspection
A third-party inspector or an appraiser re-visit, typically 2-5 business days out. This is the step that slips.
Approval and funding
1-3 business days after a clean inspection. Wire fees may apply.
Total cycle time is commonly 5 to 12 business days. Plan your contractor payments around that, not around the optimistic end of it.
What this means for your cash
Fewer, larger draws mean more float. More, smaller draws mean more inspection fees at $150-$350 each. There is no free option; pick deliberately based on whether your constraint is cash or cost.
Questions to settle before closing
- How many draws are included, and what does each one cost?
- What is your inspection turnaround, in business days?
- Do you fund on completion, or advance against contracts?
- Is there a minimum draw amount?
- Do you require lien waivers, and from whom?
- Can materials on site be drawn against, or only installed work?
- Who orders the inspection, and what happens if it fails?
The interaction with your accrual basis
If interest is charged on the full facility, slow draws cost you nothing extra - the interest is running on the whole amount regardless, so drawing early is strictly better for your cash flow. If interest is charged on the drawn balance, drawing only what you need when you need it saves real money. Your optimal draw behaviour is the opposite in each case, which is one more reason to know which one you signed. See interest on the undrawn holdback.
Questions people actually ask
How much do you put down on a hard money loan?
Against as-is value, lenders typically go to 60% to 75%, so 25%-40% comes from you. On a purchase with rehab the more common framing is loan-to-cost: 80%-90% of the purchase price plus 100% of the rehab budget, held back and released in draws.
Do not confuse the down payment with cash to close. Points, flat fees, title, insurance and the first draw you fund yourself all sit on top. Ten to fifteen percent of purchase price is a realistic planning figure for total cash needed on a leveraged flip.
How much down do you need for a hard money loan?
See above - 10% to 20% of purchase is the usual range, before fees and reserves.
Does a hard money lender cover 100%?
Almost never on purchase price, and the offers advertising it usually mean something narrower: 100% of the rehab budget (common and real), or 100% of purchase where the purchase is far below as-is value and the loan is still inside the lender's ARV cap (rare and deal-specific), or 100% with cross-collateralisation against another property you own (real, and it puts a second asset at risk).
Treat a headline promising 100% financing with no cash as the marketing hook it usually is, and read what the offer actually caps at. See the truth about 100% financing.
How long do you have to pay off a hard money loan?
Terms run 6 to 24 months, with 12 months the most common. That is a hard deadline with a fee attached, not a guideline - which is why the exit matters more than the rate.
How do you pay back a hard money loan?
Three ways, and you should know which one before you sign. Sell the property and pay off from proceeds. Refinance into longer-term debt, usually a DSCR rental loan. Or pay it off from other capital. Most hard money loans are interest-only during the term with the principal due as a balloon at the end, so there is no amortisation quietly reducing what you owe.