How 203(k) Draw Inspections Work and When You Get Paid

Once the work starts, almost every borrower asks me the same thing: when do I actually get paid? On a 203(k) the renovation money does not land in your account at closing and it does not go to your contractor in one check. It sits in escrow and comes out in stages, and every stage is tied to an inspection. Here is how that actually works, so nothing about it surprises you.

What a Draw Really Is

After you close, the money set aside for repairs goes into an escrow account. It is not spent yet. It is released as the work gets done and gets inspected. A draw is simply a request to release the portion of that escrow that covers work already completed.

So the pattern is always the same. Work gets done. The work gets inspected. Money for that finished work gets released. Then the next stretch of work begins. Nobody is handed a pile of cash to go figure it out. The house earns the money out of escrow as it gets fixed.

That structure exists to protect you. Your loan is insured and the collateral is a home that has been opened up, so the money follows the work instead of running ahead of it.

The On-Site Inspection

When your contractor says a stage is finished, I come out to the property. I walk the job against the Work Write-Up, the same document the whole file is built on, and I check it line by line. I am confirming that the work listed as complete is genuinely complete and done in a workmanlike manner, and I note where each item stands.

Here is the line I want you to be clear on, because it matters. I inspect the work and I certify what is done. I do not release your money. The lender approves each draw and releases the funds. I am your set of trained eyes on the ground, reporting what is finished and what is not. Keeping that boundary honest is part of protecting you.

I have been a Licensed Builder in Michigan since 1994, so when I am walking that job I am reading the work the way the person who priced it would. If something was billed as done and it is not, I am going to see it before your money moves.

The 10 Percent Holdback

On every draw, the lender holds back 10 percent of the request. That held-back portion is released later, not at the time of the draw. It is a built-in cushion that holds a little back until the work is truly finished and signed off.

There is one exception worth knowing. When a subcontractor is 100 percent complete with a work item, the work passes inspection, and the required lien waivers are in hand, the lender is not required to hold funds back on that item. In plain terms, fully finished and properly documented work does not have to sit behind the holdback.

When the Money Actually Moves

This is the part people most want pinned down. Once a properly executed draw request is in the lender’s hands, along with a title update where one is needed, the lender is required to release the funds within five business days.

The check is written to you and your contractor together, as co-payees. That is the default, and it is deliberate, because it keeps both of you in the loop on the money. If you want a particular draw to go straight to the contractor, you can authorize that in writing at that draw. You decide that, in writing, each time. It is your money.

One more timing point so it does not trip you later: permits have to be pulled before the work they cover begins. Permit fees can be paid at closing, so there is no reason to start unpermitted and try to paper it over afterward.

How Many Draws to Expect

You are not doing an inspection every week. The number of draws is limited by the size and type of your loan. A Standard 203(k) allows up to five draws over the course of the project, and a Limited 203(k), which covers total rehabilitation costs up to $75,000, allows up to four. Each draw is a real milestone of completed work, not a calendar date.

My job through all of it is to keep you informed. You will always know what I found, what got released, and what is next. I give you the pros and cons of where the project stands, and you make the calls that are yours to make. That is how we keep a 203(k) moving to the finish line and into a home you can actually live in.