I have watched good renovation jobs stall for one plain reason. The contractor stopped getting paid, so the contractor stopped working.
On a Limited 203(k) loan, the money used to reach the contractor in two draws. That is a long time to ask a crew to cover labor and materials out of their own pocket. When the cash runs thin, the work slows down or the crew moves to a job that pays sooner. The borrower is the one left standing in a half-finished house.
HUD changed that. Mortgagee Letter 2026-06, dated June 23, 2026, raised the maximum number of contractor draws on a Limited 203(k) from two to four. It is in effect now.
What actually changed
The change is simple, and it only touches the Limited 203(k). The Standard 203(k) draw process is not affected.
Under the old rule, a Limited 203(k) allowed two payments to the contractor. Under ML 2026-06, that goes up to four:
- One draw at closing to get the job started.
- Up to two draws along the way as the work gets done.
- A final draw once everything is finished and signed off.
That is it. No new paperwork burden on the borrower, no change to what the loan can cover. Just more points along the way where a contractor can get paid for work that is already complete.
Why the number of draws decides whether a job finishes
People think a renovation loan lives or dies at closing. It does not. It lives or dies at the draws.
A draw is the moment the contractor gets paid for a chunk of finished work. Two draws on a job that runs several weeks means the crew fronts a lot of money and waits a long time to see it back. Cash flow is the number one reason a good contractor walks off a renovation, and it is the number one reason a borrower calls me worried that their project has gone quiet.
Four draws changes the rhythm. The contractor can finish a phase, get inspected, get paid, and roll that money straight into the next phase. The work keeps its momentum. The crew stays on your job instead of drifting to the next one. For a homeowner, that is the difference between moving in on schedule and living in a construction zone for an extra month.
Where the consultant fits
Here is the part loan officers ask me about most. Who checks that the work is really done before the money goes out?
That is my job. As the HUD 203(k) consultant on the file, I inspect the completed work at each stage and release each draw. I am the set of eyes that confirms the contractor actually finished what they are asking to be paid for. More draws means I can verify progress sooner and get the contractor paid sooner, without letting the money get ahead of the work.
That protects everyone. The borrower does not overpay for work that is not done. The lender knows every dollar released is backed by an inspection. The contractor gets paid on a schedule that keeps the crew on site. I have been on job sites since I got my builder’s license in 1994, so I know the difference between a phase that is finished and one that is close enough to argue about.
What this means for your next file
If you are a loan officer with a Limited 203(k) borrower, this is good news you can pass along. A tighter draw schedule is one of the strongest reasons a renovation stays on track, and now you have four draws to work with instead of two.
If you are a homeowner planning a renovation, ask your loan officer whether a Limited 203(k) fits your project. Then bring in a consultant early. The draw schedule is only as good as the person inspecting the work behind it.
I am a HUD-Approved 203(k) Consultant, HUD ID P1984, working across Michigan, Indiana, Ohio, Pennsylvania, and Florida. If you have questions about how a Limited 203(k) draw schedule works, start with the 203(k) consulting FAQ or call me directly.
Got a 203(k) on your desk? Schedule a Free Call: 248-469-8460.