FHA 203k--Working with the Contractor

6 Replies

Hi Everybody.

If someone intends to owner/occupy a home after renovations....

and the approved contractor has an agreement on the job...

Can the GC "supervise" the work done by the borrower or hired help (trashout, prep/cleanup, etc.), to reduce the actual cost?  

Would the loan fund with some cash back to the borrower?  

Not looking to break any rules, just curious about process.  


 Has back to the borrower....no. Could you reduce the cost/borrowed funds...yes, if you found a contractor willing to let you do some of the work, under his contract, and that contractor could get approved....not likely though.

HI Steven,

The contractor's pricing must include any "self help" work that may be completed by the borrower ... HUD/FHA guidelines. This is to ensure that in case the borrower cannot complete the "self help" portion, that there will be sufficient funds in the rehab account to do it. Any money saved by "self help" on a Limited 203k can ONLY be used to reduce the loan balance at the end of the project but for a Standard 203k can be used for additional improvements or be used to reduce the loan balance at the end of the project.

Borrower wanting to do any "self help" must be approved by the lender prior to loan closing and sign a special agreement. Most experienced 203k contractors doing 203k work will not allow "self help" because the contractor is liable for all work and materials for the project and must provide a 1 year warranty on labor and materials. 

Also, 99.9% of experienced 203k lenders will not allow "self help."

That's for an excellent summary of the situation. I don't want to "skirt" any rules or bumble into anything unaware. It seems like so many MLS houses are priced top dollar with features I NEVER would have chosen when it seems a buyer could pick up a motivated sale after a contractor did a walkthrough with a good idea of what would be needed to make it the "After" picture at closing. Thanks again to both of you for the illumination.


@Steven Holiday

Hey Steven...I'm a Renovation Manager of national lender including 203k. Self help is a no go by most lenders...because of a number of reasons. Cash back to borrower is not allowed. If you have an agreement with the contractor in splitting the work is rare and I've seen more issues and disputes then I care to count. Furthermore HUD is very vigilant on different practices and does post close audits on renovation. Any leftover cash goes to principal reduction. The other comments here are correct.