Hiring An FHA 203k Contractor

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The selection of an experienced 203k contractor is one of the most important decisions a borrower can make during the FHA 203k loan process.

Partnering with the right 203k contractor can make all the difference to a successful 203(k) experience.

Starting your selection and bidding process should begin by searching for a General Contractor that has completed home renovation projects with 203k loans, and the references to back it up.

An experienced 203k ontractor will have the proper documents, licensing and insurance required by HUD and the lender funding your 203k loan.

A HUD 203k consultant will also be helpful in the bidding and project management process that involves your 203k contractor.

HUD has a detailed list of standards that a 203k contractor must meet, which is why it is highly recommended that you work with a General Contractor who has experience with FHA 203k loans.

Frequently Asked Questions About Hiring A 203k Contractor

Does HUD Provide A List Of FHA 203k Contractors?

HUD does not certify specific 203k contractors for home renovation projects that are being financed with an FHA 203k rehab loan.

It is actually up to the borrower to find their own 203k Contractor who will pass the requirements set forth by the lender's licensing, references, insurance, experience and education guidelines.  

Will My Mortgage Lender Inspect The Repairs/Improvements?

It depends on whether you are doing a Standard/Full 203k or a Streamlined 203k loan.

Full / Standard 203k Loan (Structural): All work must be inspected prior to the contractor receiving each draw. This is to ensure that the work is being completed according to HUD's standards.

Streamlined 203k (Cosmetic): The lender will perform a final inspection prior to releasing the final draw to your 203k contractor.

What Is A Contingency Reserve?

A contingency reserve is a buffer amount, generally 10%-20% of the repair amount, that is set aside to cover any additional costs that are associated with the renovation project.

This protects the borrowers and sellers from having to start over with a new loan, appraisal, approval and inspection process.

It is important to note that all of the unused funds are applied to a principal reduction, and the borrower will not receive the difference back in cash at closing.

Can I Do The Renovation Work On My Own?

Yes, in special circumstances, where the borrower is a General Contractor with the proper licensing required for lender approval.

However, if the lender approves the loan, the borrower can only be compensated for materials, not for time or labor. And, just like with the contingency reserve, any additional funds must be applied to a principal reduction.

Basically, it's in the borrower's best interest to have a certified 203k contractor complete the home renovation project.

How Do Contractors Get Paid?

203k Contractors get paid through an escrow account by the lender through a series of draws, depending on they type of 203k loan.

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