Overview

Short-term rehab loans (also called fix-and-flip or bridge loans) fund acquisition plus renovation costs for projects typically completed within 6–12 months. Lenders underwrite on the property’s after-repair value (ARV), the borrower’s plan, and contractor or borrower experience. Successful projects rely on a clear draw schedule and timely inspections so funds match completed work and avoid costly delays (see CFPB guidance on short-term mortgage-like products) (https://www.consumerfinance.gov/).

How draws work

  • Draws are partial disbursements from the loan used to pay contractors, materials, and permit costs. Each draw usually equals the completed work value for that project phase. Lenders hold a retention/reserve (commonly 5–10%) until final completion to protect against punch-list items.
  • Typical draw stages: initial acquisition, foundation/structure, rough trades (electrical/plumbing/HVAC), finishes, and final completion. Exact stages depend on lender requirements and your scope of work.

Inspection types and timing

  • Progress inspections: verify the milestone tied to a draw. The inspector confirms that work is substantially complete and documents any deficiencies.
  • Final inspections: performed before the final disbursement and loan payoff; they confirm all permit work is closed and punch-list items are complete.
  • Specialty inspections: you may need third-party inspections for structural, mold, or code-sensitive work.

Preparing for inspections — quick checklist

  • Signed contracts and invoices for contractors and subcontractors.
  • Permits and inspection reports from the city (where required).
  • Photographic evidence of before/after work and material receipts.
  • Lien waivers for each paid draw (or a plan to deliver them with disbursements).
  • Updated budget and timeline showing how the requested draw fits the remaining work.

Documentation lenders expect

Lenders commonly require: the draw request form, current inspection report, contractor invoices, subcontractor lien waivers, proof of permits, and recent photos. Having these ready speeds approval—missing paperwork is the most common reason for draw delays.

Best practices for draw schedules and cash flow

  • Build a conservative timeline: assume one inspection and one draw per major phase, and add buffers for permit or material delays.
  • Negotiate realistic milestones up front. Lenders are more cooperative if milestones tie to measurable outcomes (e.g., “roof installed and weatherproofed” instead of “roof finished”).
  • Keep a contingency reserve (10–15%) in your budget for unseen repairs identified during inspections.
  • Use digital photo logs and project-management software so the lender and inspector can review progress remotely.

Common mistakes and how to avoid them

  • Treating inspections as a formality. Inspectors verify work to protect the lender’s collateral; fallen expectations will stop disbursements and extend your timeline.
  • Failing to pull permits. Unpermitted work can halt funding and eliminate resale or refinance options.
  • Not tracking lien waivers. Contractors can place liens if payments aren’t properly documented.

Author’s real-world note

In my 15 years advising investors, projects that perform best have three traits: a lender-aligned draw schedule, organized documentation, and a licensed contractor who understands local inspection practices. One client reduced draw approval time from two weeks to two days by providing a standard photo log, invoices, and permit copies with each draw request.

Related reading

Quick FAQs

Q — How often will a lender inspect my property?
A — Typically at each draw request or major phase in your approved schedule. Some lenders allow remote photo inspections for small draws; expect in-person inspections for structural or code work.

Q — What happens if an inspection fails?
A — The lender withholds the draw and provides a punch list. You must correct deficiencies and request a re-inspection; plan for time and cost impacts.

Q — Can I pay contractors ahead of an inspection to keep work moving?
A — You can, but the lender won’t release additional funds until an inspection verifies the paid work. Ensure you have private funds or contractor terms that allow staged payments until draws clear.

Regulatory and practical notes

FHA 203(k) and other government rehab programs have different inspection and draw rules than private hard-money lenders—review program specifics before choosing a product (see HUD guidance on 203(k)) (https://www.hud.gov/program_offices/housing/sfh/203k). For consumer-protection issues and loan terms, reference the Consumer Financial Protection Bureau (https://www.consumerfinance.gov/).

Professional tips

  • Build relationships with inspectors and local building departments. Quick communication reduces surprises.
  • Standardize your draw packet: photos, inspector checklist, invoices, lien waivers, and a short cover letter explaining the requested work.
  • Anticipate weather- or supply-related delays in high-risk seasons and reflect those in the draw timing.

Closing takeaways

Managing draws and inspections is a process discipline: plan clear milestones, assemble complete documentation before each draw, and keep an inspection-ready audit trail. Doing so reduces funding delays, protects your profit margin, and improves lender trust.

Disclaimer

This article is educational and does not constitute personalized financial, legal, or tax advice. For loan terms, underwriting specifics, or legal questions, consult a licensed mortgage professional, attorney, or tax advisor.

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