FHA 203k Draw Request Process
FHA 203K Draw Request Process
What Is The 203k Rehabilitation Escrow Account?
When the 203k loan is closed, the proceeds designated for the rehabilitation or improvement, including the 203k contingency reserve, are to be placed in an interest bearing escrow account insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). This account is not an escrow for the paying of real estate taxes, insurance premiums, delinquent notes, ground rents or assessments, and is not to be treated as such. The net income earned by the 203k Rehabilitation Escrow Account must be paid to the mortgagor. The 203k draw request process and schedule is subject to agreement between mortgagor and the 203k lender. The 203k lender (or its agent) will release escrowed funds upon completion of the proposed rehabilitation in accordance with the Work Write-Up and the Draw Request (Form HUD-9746,A). 
How Many Draws Are Allowed On A Standard 203k?
A Standard 203k allows for up to six months and a total of five draw request to complete the project. The amount and number of draws is suggested by the 203k consultant in conjunction with the contractor and the borrower. The proposed 203k draw request schedule is included in the work write-up and the Homeowner/Contractor Agreement and is approved by the underwriter during the approval portion of the loan. An example might be a project that will take 6o days to complete and could have two draws followed by a final inspection/draw. The amount of each draw request is unique to the proposed renovation cost. A 203k loan with three draws that has a large portion of the repair in material cost (ie.cabinets, energy efficient windows, siding, etc.) may find that the first draw is the largest request of three in order to reimburse the contractor for large material orders that they have placed and paid for in advance. While a three draw work write up that is more labor intensive may find that the draw request amounts are more evenly spread-out over the three draws.
Who Comes Out and Performs The Inspections And When?
All inspections will be performed by HUD-approved consultants/inspectors.The 203k consultant is to use the architectural exhibits and the detailed work write up in order to make a determination of compliance or non-compliance. When the inspection is scheduled with a payment, the inspector is to indicate whether or not the work has been completed. Also, the inspector is to use the Draw Request form (Form HUD-9746-A) and supply a Lien Waiver and Release signed by the contractor. Once completed by the consultant/inspector, the 203k Draw Request must be signed by the borrower, contractor and the consultant/inspector before being forwarded to the lender. The first draw must not be scheduled until the lender has determined that the applicable building permits have been issued.
How Does The Holdback Work?
A ten (10) percent holdback is required on each release from the 203k Rehabilitation Escrow Account. The total of all holdbacks may be released only after a final inspection of the rehabilitation and issuance of the Final Release Notice. The lender (or its agent) may retain the holdback for a maximum of 35 calendar days, or the time period required by law to file a lien, whichever is longer, to ensure that no liens are placed on the property.
What Happens To Unsued Funds In The Rehabilitation Escrow Account?
The borrower may request that the 203k contingency reserves be used to complete additonal renovation to the property. This process can only take place after all of the work, according to the write-up has been completed in a satifactory manner and the final inspection has been approved. At the conclusion of the final inspection the 203k contractor will supply the inspector with a change order, any appropriate drawings or archetectual plans and a detailed invoice on company letterhead identifying the proposed items (signed by both the borrower and contractor). The inspector will forward the contractors pr0posal to the lender for reveiw and acceptance. All change orders are left to final approval of the 203k lender.
FHA Streamline 203k (Maximum of two total draws)
Payments in advance of construction: The mortgagee—at its discretion—may provide the 203k contractor with up to 50 percent of the estimated cost of any work item prior to beginning construction. Such payments should only be made where the mortgagee is satisfied with the reputation of the 203k contractor(s) and the contractor is not willing or able to defer receipt of payment until completion of the work or the payment represents the cost of materials incurred prior to construction.
Payments for Inspections: For repair costs not exceeding $15,000, the 203k lender is not required to perform, or have others perform, inspections of the completed work. However, the mortgagee may choose to obtain or perform inspections if it believes such actions are necessary for program compliance and/or risk mitigation.
The 203k lender may also ensure that the repairs and/or improvements have been completed by obtaining contractor’s receipts or by a signed Mortgagor’s Letter of Completion. If the 203k lender determines that an inspection(s) by a third party is necessary to ensure proper completion of the proposed repair or improvement item, the 203k may charge the borrower for the costs of no more than two inspections per each contractor.
