203(k) Budget Allowances – I could use some extra money!


Mr Smith, 

I was wondering some things about the construction bid on our house in Natchez. If the contractor has given me an allowance for an item, and I don’t use the entire allowance, can the access amount be rolled to another item?

For example: an allowance of $250 for a vent hood, but I find a vent hood for $150. I now have $100 left. An allowance of $400 for a dishwasher, but the one I want is $500. Can I use the extra money from the vent hood?

Also, if I am shopping and find an item from the bid, such as a light fixture, on clearance, and there is only one at a great price, can I purchase it, or do I have to wait on the contractor to go and get it?Sorry to bother you, but I need some clarification.

Thank you! – Phyllis


contractorPhyllis –


Thanks for writing. Your questions are among the most common I’m asked. Let me start by saying that there are, generally speaking, three paths to remodeling.

  1. You hire someone to act as your contractor and either he/she has employees who perform the work or hires sub-contractors to perform the work. In both instances the work involves a pre-determined list of materials, usually based on plans and specifications. The list is usually defined by the client prior to contractor bids and definitely before starting construction.  The contractor will install the materials using his labor. He will be responsible for the entire project and will warrant his work, either based on local license laws or a predetermined warranty agreement that “extends” the license law.
  2. You take on the roll as the contractor and you hire the labor. You purchase the materials. You become responsible for the warranty. You pay the labor. You gain all the benefits of the savings, but you take the risks.
  3. You attempt to combine the two paths, where you provide some of the project specifics and you and the contractor share the warranty, share the labor costs and you attempt to share the liabilities of workmanship quality, material defects, job site supervision, material purchases and all the other elements of a construction project.

The 203(k) Loan program is a lender specific program. Most lenders will not allow #2, “self-help”. If and when they do allow for self-help, HUD guidelines state that you’ll be asked to borrow the money for your sweat equity (work you perform yourself). In the event you can’t perform the labor the funds will then be budgeted in the project. If you do perform the work, the money you saved will be returned to your principal balance. The K Loan will not allow you to “cash out”.

Most contractors are in business to make a profit. Therefore #3 will not be an attractive option for your contractor. There are plenty of other reasons that #3 won’t work well.

By default you will be left with option #1.

When considering option #1, there are a few (and this list is not all inclusive) topics you’ll want to discuss “before” you get started and certainly before you sign the homeowner/contractor agreement.

  • Choose everything that you want to have input on, NOW. There will be many parts to your rehab, some will be generic (screws, bolts, nails, glue, etc) and there’s no need for your to be concerned with those purchases. However, there are items you’ll want to be specific about. The brands, type, style, color, texture and model of:
    • Appliances
    • Roofing
    • Siding/Brick
    • Counter Top(s)
    • Flooring
    • Paint
    • Lighting
    • Faucets
    • Sinks
    • Tubs
    • Windows
  • Give your contractor a solid budget to work from. Take each one of the items you want to participate in choosing and make that communication clear (written down makes the best sense). Otherwise, your contractor will most likely price and install (using the same method as he has used with the screws and bolts) the product that makes the best since to him/her. If you don’t specify what you want, it will be provided for you.

yesnodepensCan you move credits from one type purchase or construction line item to another? The simple answer is: Yes, No, Depends.

Yes. The K program will allow you to move credits within line items. That won’t be a huge problem unless the results are huge. Crediting a line item is a fairly simple accounting procedure. Saving money on one item and moving the balance to another will depend on what that item is and on your rehab contract. Communicate that wish to your contractor before you begin construction and, if you both agree, add specific language in your home owner/contractor agreement to cover the option. Do that NOW, before you sign.

No. If you change your mind during construction and try to credit an entire line item, you could, conceivably, change the value of the rehab, thereby being denied that option (by the lender). Example: Roofing. If your K Loan includes replacing roofing material and you decide to take those allocated funds to, for example, Kitchen Cabinets, the lender may consider that to be too risky and could in effect/alter the value of your home. The K Loan’s repair items are value sensitive. Your home’s appraisal is based on the value of the repairs. Be careful changing entire line items.


  1. On how your contractor feels about making changes to the plans and specs.
  2. On the value of the credit
  3. Does your agreement with the contractor allow you to participate in “sales items”
  4. A number of other issues…(too many to list here)


The main take-away here is the more time and effort you ask the contractor to spend, generally speaking, on making changes to your plans and specs and keeping up with credits and debits, the more money it will potentially cost you. When considering changes to plans and specifications on any size project, whether it’s a remodel job or a total build, communication is the key.



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