Standard 203(k) Rehabilitation Mortgage Insurance Program:
A Contingency Reserve is always required for a Standard 203(k) transaction. The minimum and maximum Contingency Reserve is established as a percentage of the Financeable Repair and Improvement Costs.
For Structures with an actual age of less than 30 years:
• Required when evidence of termite damage: Minimum = 10%; Maximum = 20%
• Discretionary: No Minimum %; Maximum = 20%
For Structures with an actual age of 30 years or more:
• Required: Minimum = 10%; Maximum = 20%
• Required when utilities are not operable as referenced in the Work Write-Up: Minimum 15%; Maximum = 20%
The Borrower may provide their own funds to establish the Contingency Reserves. Where the Borrower has provided their own funds for Contingency Reserves, they must be noted under a separate category in the Repair Escrow Account.
A Contingency Reserve is not mandated for a Limited 203(k) transaction; however, at the mortgagee’s discretion, a Contingency Reserve account may be established and financed. The Contingency Reserve account may not exceed 20% of the Financeable Repair and Improvement Costs.
For additional information see Handbook 4000.1 II.A.8.a.vi(E) and II.A.8.a.vii(E) at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh