203(K) process?

3 Replies

I am sure the answer is somewhere on biggerpockets but can someone give me the short story on part of the process for a 203(k)? 

I have 2 friends, A is the contractor and B is the buyer. A only wants to make a small percentage for his time because B is his friend.

If the bid for renovations comes in at $15,000 but the needed repairs to get the property to a living standard only cost $10,000, does the contractor get to keep the difference? If the contractor only draws the $10,000, what happens to the other $5,000? 

Please let me know if you need more information.


The contractor's work has to be inspected, and approved by the appraiser/consultant.  If the rehab budget/funding is $20k, and the Reno comes to only $15k, the extra $5k is used to pay down the loan.

Hi Mathew,

Here's a little more detail in case it helps...

Contractors do not get paid for work completed based on receipts. They are paid based on percentage of the scope of work that's completed. Without any intervention from A or B, the bank will send checks totaling the full $20k once the final draw inspection is conducted and passed because that means 100% of the SOW is completed. However, if the work is completed with $15k and A and B agree that that is all A will get paid, then B can request a change order from their HUD consultant that both A and B will sign. The $5k would not be disbursed and would go to pay down the loan.