Renovation draws: what to tell your borrower before closing

On a fix & flip the loan does not arrive in one piece. The purchase money funds at closing and the renovation money is held back, released in draws against work actually done — five or six times over four months. You get paid at closing. The borrower lives with the draws.

Explain these five things before they sign, because they will meet all of them anyway.

1. The money is not in their account

The single most common surprise. The holdback is the lender's until work is done and verified. A borrower who budgeted as though the whole loan lands on day one discovers otherwise the first time a contractor asks for a deposit.

2. They pay first, then get reimbursed

Draws reimburse completed work. That means working capital, or a contractor who will carry the first stage. A borrower with no cash beyond the down payment and closing costs is a borrower who stalls at the first draw, and a stalled project is the one that runs past its term.

3. Inspections take real days

Most draws are inspected. Ordering an inspector, getting them on site and getting the report back is the longest step, and it is not one anybody can compress. Build it into the schedule rather than discovering it.

4. Small draws cost them money

The inspection is billed to the file. A $900 draw that costs $175 to inspect spends the borrower's own money proving a point. Batching work into fewer, larger draws is cheaper and faster, and nobody tells them this unless you do.

5. A partial approval is not a refusal

An inspection that finds the work 80% done produces an approval for less than the ask. The balance stays in the holdback. Borrowers who have not been told this read it as being turned down and start phoning.

Why any of this is your problem

Because the complaint is always the same, and it is never about the rate: "I did the work, I sent the photos, and then I heard nothing." Contractors stop when they are not paid. The schedule slips. The hold gets longer, and the hold is what the interest is paid on.

A borrower who has been through that once picks their next lender on it — and they will tell the next investor who asks them who to use. That is a referral you either earn or lose in the four months after you were paid.

What our desk does with it

The borrower requests a draw from the same link they uploaded documents to, attaches photographs and invoices, and sees which of six states it is in and what is needed next. They are emailed and texted when it is inspected, sent back, approved, released or declined — with the reason in the message, not behind a link. You can see all of it from the deal page.

The whole of it, including what it costs you, is on the broker page.