FHA 203k--Working with the Contractor

[Steven Holiday]

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.  

Thanks.

[Paul Welden]

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."