FHA 203(k) holds renovation dollars in escrow after closing and releases them in inspection-based draws as contractors complete approved work — not as a lump sum you spend freely.
At closing, purchase (or refinance) proceeds and rehab dollars combine into one FHA mortgage. The renovation portion stays in a rehab escrow controlled by the lender — protecting you, the contractor schedule, and the after-improved value the appraisal assumed.
As phases finish, an inspection confirms the work matches the approved bid or consultant write-up. Then a draw pays the contractor. Final inspection and holdback release close the escrow.
Ryan and Steve set expectations with contractors up front so nobody expects a full payout the day you close.
On Limited 203(k) Streamline, renovation escrow may include labor and materials, two draw inspections, title update fees, permit fees, contingency reserve, and supplemental origination fee (greater of 1.5% of rehab costs or $350).
Limited 203(k) allows no more than two draw releases during the renovation period.
Each draw retains a 10% holdback until work passes inspection and the holdback is released.
When a contractor cannot wait for payment, up to 50% of labor and material costs may be advanced before work begins.
Labor, materials, two draw inspections, title updates, permits, contingency reserve, supplemental origination fee, and discount points on repair costs when charged.
Contractors complete line items from the bid or HUD consultant write-up — not ad-hoc extras without approval.
A draw request triggers an inspection to verify percentage complete and quality against the plan.
Approved amounts pay the contractor. Contingency covers only approved overruns when reserved.
When all work is done and any punch list clears, remaining holdback releases and the rehab escrow closes.
Vague lump sums slow inspections. Line items that match the write-up get paid faster.
Build a realistic contingency so small overruns do not freeze the project waiting for cash.
Draws must finish inside the lender’s rehab timeline — delays can force extensions or other remedies.
Credentials required before draws start.
Consultant role in Standard draw management.
How purchase-plus-rehab closing sets up escrow.
Draw complexity differs by path.
Cross-program escrow and draw overview.
Usually no. Rehab funds sit in escrow after closing and release in draws as work passes inspection. A small contingency or holdback often remains until final completion.
The lender orders inspections — and on Standard 203(k), the HUD consultant typically coordinates draw requests and inspections against the work write-up.
Contingency reserves (when included) can cover approved overruns. Material change orders may need lender and consultant approval and sometimes borrower cash if contingency is exhausted.
Yes. Limited 203(k) allows a maximum of 2 draws with a 10% holdback on each draw. Up to 50% of labor and material costs may be advanced before work begins if the contractor is unwilling or unable to wait for payment. Standard 203(k) allows a maximum of 5 draws (4 intermediate + 1 final) with a 10% holdback on each draw and a final 1004D inspection — coordinated by the HUD consultant.
Share your bids and Limited vs Standard path — Ryan & Steve will walk through how escrow draws work before you close.
All loans are subject to credit and property approval. FHA program guidelines, eligible improvement lists, MIP rules, and pricing are subject to change without notice and may not be available in all areas. This website is not affiliated with or endorsed by HUD, FHA, or any government agency. Information is for educational purposes only and is not a commitment to lend.