What Is Draw Schedule?
A draw schedule breaks your renovation budget into payments released at milestones. Lenders use it to control construction loan disbursements; contractors use it to manage cash flow. Each draw requires an inspection and approval before funds release.
A draw schedule is a timeline that releases renovation funds in stages as work completes, typically tied to milestones like demolition, rough-in, and finish work.
At a Glance
- What it is: Staged release of renovation funds tied to completion milestones
- Why it matters: Protects lenders and investors; ensures work is done before payment
- Key detail: Typical draws: 3–6 for a flip; each tied to inspection
- Related: Contractor bid, construction loan, punch list
- Watch for: Delays in inspection or approval can slow the contractor and extend timeline
How It Works
Milestone-based. Common milestones: (1) demolition and rough-in complete, (2) mechanicals (HVAC, electrical, plumbing) complete, (3) drywall and flooring complete, (4) finishes (cabinets, counters, fixtures) complete, (5) final punch list complete. Each milestone maps to a percentage of the total budget.
Inspection. Before each draw, the lender or inspector visits the property. They verify completion and may photograph progress. If work is incomplete, the draw is rejected until the contractor fixes.
Payment. Once approved, funds are released within 3–7 business days. The contractor uses the draw to pay subs and materials for the next phase.
Retainage. Some lenders hold 5–10% until the final punch list is complete. That final draw releases after the contractor addresses all items.
Real-World Example
Nina Patel has a $55K renovation budget on a 1,200 sq ft flip in Houston. Her construction loan uses a 5-draw schedule:
| Draw | Milestone | % | Amount | |------|------------|---|--------| | 1 | Demolition, rough-in complete | 20% | $11,000 | | 2 | Mechanicals complete (HVAC, electrical, plumbing) | 25% | $13,750 | | 3 | Drywall, flooring complete | 25% | $13,750 | | 4 | Finishes complete (cabinets, counters, fixtures) | 25% | $13,750 | | 5 | Punch list complete | 5% | $2,750 |
Draw 1 inspection: 12 days after start. Contractor passes; $11K released. Draw 2: 4 weeks in. HVAC delay pushes inspection to week 5. Nina's holding costs tick up. She pushes the contractor to finish; Draw 2 passes.
Final draw (5) releases after the punch list is complete. Contractor has 2 weeks to finish; Nina holds $2,750 until then.
Pros & Cons
- Protects lender and investor from paying for incomplete work
- Aligns contractor cash flow with progress
- Creates clear milestones for project management
- Reduces risk of contractor abandonment
- Inspection delays can slow contractor progress
- Contractor may need upfront capital for materials
- Complex for small projects; some lenders use fewer draws
- Retainage can strain contractor cash flow
Watch Out
- Inspection delay: Schedule inspections promptly; delays stall the contractor
- Scope creep: If you add work mid-project, draw schedule may need adjustment
- Contractor cash flow: Contractor may need advance for materials; discuss upfront
Ask an Investor
The Takeaway
A draw schedule is the payment backbone of your renovation. It ties your construction loan and renovation budget to milestones and keeps the contractor accountable. Manage it well—delays in draws delay the project and increase holding costs.