AWACSMortgage compliance intelligence from Flightline

FHA · Mortgagee Letter ML 2026-06 · Published

Increase in the Maximum Number of Draw Requests for Limited 203(k) Rehabilitation Mortgage Insurance Program

FHA has increased the maximum number of allowable draw requests under the Limited 203(k) program from two to four per contractor, consisting of an initial draw, up to two intermediate draws, and a final draw. Additionally, FHA clarified that draws may include two disbursements under Limited 203(k) and multiple disbursements under Standard 203(k).

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Loan impact

From the letter text · verified

Applies to: FHA Section 203(k) Rehabilitation Mortgage Insurance Program transactions, including Limited 203(k) and Standard 203(k) mortgages.

Addressed to
All FHA-Approved Mortgagees
Investor
FHAFrom the publisher, not quoted from the text
Programs
FHAFrom the publisher, not quoted from the text
Affected area
RenovationGuide Section II.A.8.a.vii(B)
Applicability confidence
Verified: every row taken from the source text is supported by it; rows marked "from the publisher" are not quoted
Supporting quotes from the letter
  • affected areas“This Mortgagee Letter (ML) increases the maximum number of allowable draws under the Limited 203(k) program and clarifies draw disbursement procedures to strengthen risk controls and reduce administrative burden.”
  • guide sections“This ML: • updates Limited 203(k) Ineligible Improvements/Repairs (II.A.8.a.vii(B)) for rehabilitation activities that require more than two payments per contractor; • clarifies that multiple disbursements per draw are allowed under Standard 203(k) Release of Funds (II.A.8.a.xviii(C)(1)(d)(i)); • clarifies that a draw may include two separate disbursements under Limited 203(k) Release of Funds (II.A.8.a.xviii(C)(1)(d)(ii)); and • increases the maximum number of draw requests under Limited 203(k) Release of Funds (II.A.8.a.xviii(C)(1)(d)(ii)).”

What changed

From the letter text · Sections II.A.8.a.xviii(C)(1)(d)(ii), II.A.8.a.xviii(C)(1)(d)(i), II.A.8.a.vii(B)
RequirementPreviouslyNow
Limited 203(k) maximum draw requestsRelaxedSection II.A.8.a.xviii(C)(1)(d)(ii)Previously: Mortgagees were limited to a two-draw limit per contractor.The Mortgagee may approve a maximum of four draw requests per contractor or for the Borrower, consisting of the initial draw at closing, no more than two intermediate draws, and release of the final draw.
Limited 203(k) disbursements per drawRelaxedSection II.A.8.a.xviii(C)(1)(d)(ii)Not statedEach draw may include up to two separate disbursements, and a draw with two disbursements counts as one draw.
Standard 203(k) disbursements per drawRelaxedSection II.A.8.a.xviii(C)(1)(d)(i)Not statedEach draw may include multiple disbursements, and a draw with multiple disbursements counts as one draw.
Limited 203(k) major repair draw limit definitionRelaxedSection II.A.8.a.vii(B)Previously: Rehabilitation activities that require more than two payments per contractor.FHA considers a repair to be major when rehabilitation activities require more than four draws per contractor.

What to do

AWACS interpretation · not source language

What to review: Review the updated 203(k) draw administration flexibility permitting up to four draw requests per contractor with up to two disbursements each on Limited 203(k) loans and clarifying multiple disbursements per draw on Standard 203(k) loans.

QC implications

  • Sample Limited 203(k) files utilizing additional draws to verify draw requests do not exceed four per contractor, consisting of an initial draw at closing, up to two intermediate draws, and a final draw.
  • Verify that draw requests requiring more than four draws per contractor under Limited 203(k) are properly identified as major repairs and evaluated under the appropriate program.
  • Confirm that Limited 203(k) draws do not exceed two disbursements per draw and that multi-disbursement draws are correctly accounted for as a single draw request.

Source and record

Version 1 · archived

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  • Requirements backed by the source: Passed

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  • In scope: Passed

    The document is about residential mortgage lending.

  • Format and labels: Passed, adjusted automatically

    The record follows the AWACS format and uses its standard labels.

    • A detail the source does not support was removed or adjusted