What is Needed » Step 3. Disbursements

Specification of Repairs
The specification of repairs must include the FHA-defined 35 areas of concern and include a cost breakdown. It must include any recommended contingency reserve amount and the number of recommended inspections. The cost breakdown must list the cost of materials and the labor costs separately. If the borrower is performing some of the work, the labor costs cannot be eliminated from the estimates.

Completing the Work Write-Up
In addition to the Contractor specification in costs and details of repairs required. Additionally, other items including termite reports, well and/or septic certifications, roof certifications, foundation certifications, or architectural plans may be required to develop a complete picture of the work to be done. The Loan Officer will coordinate with the Processor who will work with Contractor, Mortgage Underwriting, Closing and the Title Company to determine which certifications are required and who will order them.

Inspections / Certifications
Where required by the Appraiser, the following inspections, reports and clearances may be required:

  • Wood-destroying organism report
  • Well cert (unless well replacement is part of rehabilitation)
  • Septic cert
  • Additional HVAC or system certifications
  • Additional architectural exhibits as required
The Draw Process
Contractors receive maximum two (2) payments. After closing on the home, contractors may receive a portion of the job cost (maximum 50%) as a pre-construction payment, subject to lender approval but may take weeks to arrive. Therefore, contractors must be financially capable of affording all the start-up costs and a portion of the ongoing expenses with the 203k project (ample credit lines with suppliers and subs and/or sufficient capital/reserves). Once all the work is complete, the contractors can request final payment of the remaining portion of the job cost according to the proposal that was submitted and approved by the borrower and the lender. A final inspection and/or appraisal is required (depending on what type of 203(k) was used) regardless of the improvement or repair, and must be done at completion before the final disbursement is released. The final disbursement will include the repair contingency collected. Any leftover funds are applied to the principal balance of the loan.

The 203k Streamline work must start within 30 days after closing/funding, property must be livable within 30 days after closing, work may not cease for more than 30 consecutive days, the owner/borrower may not be displaced from the property for more than 30 days, and all work must be completed within 6 months after closing.