Releasing 203k Funds To Contractors

The FHA 203k loan has a process for releasing funds to contractors for all of the renovation and construction work that is done on a property.

No need to worry, Rehab Loan Network understands this process well, and we will be by your side to help manage the entire transaction.

For your benefit, we have outlined the main steps involved in paying for the rehab work that will be fulfilled on your home.

Rehabilitation Escrow Account

After the transaction is closed, the loan proceeds and the Contingency Reserve funds are placed in an interest bearing escrow account, to be released by the lender according to FHA guidelines.

Draws/ Inspections

As the work proceeds, inspections are performed by the HUD Consultant or approved lender staff at pre-specified stages, and contractors are paid through “draws” from the Rehabilitation Escrow Account.

Inspections and payment schedules are determined by the lender and the Work Write-Up for each project.

The first draw must not be scheduled until the lender has determined that the applicable building permits have been issued. Thereafter, inspections are performed prior to all draws by the HUD Consultant or HUD-approved lender’s staff.

Each inspection will determine whether or not the work has been completed and is compliant, and will indicate approval for funds to be released.

Holdbacks

A 10% holdback is required on each release from the Rehabilitation Escrow Account on all Standard 203k loans. The total sum of all holdbacks will be paid out only after the final inspection and release of the Final Notice.

The Streamlined 203k loan is designed with only two draws, and holdbacks are not applicable.

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