Can the 203(k) contingency reserve be used for other repairs?

STANDARD 203(k) Rehabilitation Mortgage Insurance Program
To allow use of contingency funds for improvements other than health and safety when rehabilitation is incomplete, the mortgagee must determine that it is unlikely that any health or safety deficiency will be discovered, and that the mortgage will not exceed 95 percent of the appraised value.   When the rehabilitation is complete, the borrower may use the Contingency Reserve account to fund additional improvements not included in the original Work Write-Up.   The mortgagee must obtain a change order detailing the additional improvements, including the costs of labor and materials.   The mortgagee must inform the borrower in writing of the approval or rejection of the request to use funds from the Contingency Reserve account for additional improvements within five business days. 

LIMITED 203(k) Rehabilitation Mortgage Insurance Program
The mortgagee must ensure funds escrowed in the Contingency Reserve are used solely to pay for the proposed repairs or improvements and any unforeseen items related to these repair items. 

For additional information see Handbook 4000.1 II.A.8.a.xviii.(C)(1)(d)(i)-(ii) at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-01317