How are remaining 203(k) Rehabilitation Escrow Account funds disbursed when rehab is complete?

For a Standard 203(k) Rehabilitation Mortgage Insurance Program, the mortgagee must either make funds available for additional improvements or apply the funds towards the principal balance if the Contingency Reserve was financed.  Mortgage Payment Reserves remaining in the reserve account after the Final Release Notice is issued must be used to reduce the mortgage principal.

For a Limited 203(k), the mortgagee must apply the funds towards the principal balance if the Contingency Reserve was financed. 

For additional information see Handbook 4000.1 II.A.8.a.xviii.(C) 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-04889