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FHA 203-k Contrator Requirements

FHA 203-k Contrator Requirements

FHA 203-k Contrator Requirements

What are the mortgagor’s requirements for selecting the FHA 203-K contractor?  And what are the mortgagee’s requirements for review of the contractor and the FHA rehabilitation proposal?  

The mortgagor must use one or more contractors to complete the repairs.  “Self-help” arrangements, in which the mortgagor performs the work, are not to be approved unless the FHA 203-k mortgagor can sufficiently demonstrate that he or she has the necessary expertise and experience to perform the work competently (e.g., mortgagor is an electrician and will perform electrical repairs/upgrades to the property).   

The FHA 203-k mortgagor will select the contractor(s) who will provide estimates for FHA 203k loan work to be done.  The Lender reviews the mortgagor’s proposed work plan and cost estimates to ensure the planned work meets all program and repair recommendations as noted on the appraisal report.  The FHA 203-k mortgagor must provide the FHA Lender with a written cost estimate(s) and references from a duly licensed and bonded contractor(s) for each specialized repair or improvement.  If “self-help” arrangements are utilized, the mortgagor must provide written estimates from the suppliers of the materials.  Those repairs and improvements must meet any local codes and ordinances and the mortgagor and/or contractor must obtain all required permits prior to the commencement of work.

The cost estimate(s) must clearly state the nature and type of repair and the cost for completion of the work item and must be made even if the mortgagor is performing some or all of the work under a self-help arrangement.  The Lender must review the contractor’s credentials, work experience and client references and may require the mortgagor to provide additional cost estimates if necessary.  After review, the selected contractor(s) must agree in writing to complete the work for the amount of the cost estimate and within the allotted time frame.  A copy of the contractor’s cost estimate(s) and the Homeowner/Contractor Agreement(s) must be placed in the insuring binder.  The contractor must finish the work in accordance with the written estimate and Homeowner/Contractor Agreement and any approved change order.  As in the regular FHA 203-k loan program, the Rehabilitation Construction Period begins when the FHA mortgage loan is closed. 


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