FHA Single Family Housing Policy Handbook 4000.1, Part II — f. Post-closing and Insurance (05/09/2022)

FHA Single Family Housing Policy Handbook 4000.1, Part II — f. Post-closing and Insurance (05/09/2022)

f. Post-closing and Insurance (05/09/2022) i. Disbursement Requirements (A) Direct Loans For Direct Loans, the Lender disburses the funds before the work is started. (B) Dealer Loans For a Dealer Loan, the Lender disburses the loan funds only after the work is completed. (1) Standard Before Disbursement, the Lender must obtain form HUD-56002 executed by each Borrower, and the Dealer/contractor. The Lender must conduct a telephone interview with the Borrower after the Borrower(s) and the Dealer/contractor sign the form HUD-56002. The telephone interview must confirm that: • the Dealer has completed the work; • the work is satisfactory; and • the form HUD-56002 was signed by the Borrower and the Dealer. The pre-Disbursement telephone interview with the Borrower(s) is in addition to a Lender’s credit underwriting telephone interview. The Lender must document any disagreements between the Borrower and the Dealer brought to their attention that may assist in proper supervision and monitoring of the Dealer. (2) Required Documentation The Lender must document the pre-Disbursement interview. ii. HUD Pre-insurance Loan Reviews The Lender is not required to submit the loan case file to HUD prior to insurance. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 986 Last Revised: 11/26/2025 For Property Improvement Loans, HUD reviews Loans only as part of a Loan’s Post- Endorsement Technical Review (PETR) or a claim process. iii. Lender’s Pre-insurance Loan Review The Lender must complete a pre-insurance review of the case binder to ensure all required loan documents are retained in the case binder. The Lender must exercise due diligence in performing its pre-insurance responsibilities. The Lender must evaluate all information and documentation regarding the Borrower(s) and the proposed Loan in order to confirm that the Loan is eligible for the Title I program and meets its underwriting requirements. Once the Lender determines that the Loan complies with Title I program requirements, it may proceed with the insurance application process. (A) Reporting Loan for Insurance Lenders must apply for Title I loan insurance using FHAC within 31 Days from the later of the following dates: • loan Note; • Disbursement of proceeds, or final Disbursement for stage Disbursements; or • purchase from a Dealer or another Lender. To initiate the insurance process, the Lender must complete the Title I Insurance Application function in FHAC. FHAC is used for the following steps in the insurance process: • case number assignment; • completing the insurance application; • reporting transfers prior to insuring; • reporting case updates; and • checking the case status. Instructions for specific requirements for data format and delivery to FHAC are found in the FHA Connection Guide. The Application for Insurance screen requires the Lender to enter additional data about the Lender. The system will either confirm that the data entered was accepted, or will provide information regarding corrections the Lender must make to successfully complete this step. Data fields that must be completed are grouped by the following subject areas: • general Lender information • Lender information • credit/underwriting information • Borrower information • address Information II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 987 Last Revised: 11/26/2025 (B) Confirmation of Insurance After new loan information is entered into FHAC, users view a message indicating that the Title I Property Improvement Loan was successfully completed. The new FHA case number is displayed, along with a summary of the loan information submitted. (C) Loan Insurance Certificate A Loan Insurance Certificate (LIC) is not produced in FHAC for Title I Property Improvement Loans. (D) Late Reporting The Lender may report the Loan for insurance after 30 Days provided that the Loan is not in Default. Lenders must certify, via FHAC, that all Loans reported for insurance after 30 Days from the Disbursement are not currently in Default. A certification window automatically appears when a Loan is reported past the deadline and must be checked in order to continue the insurance submission process. At the time of the certification the Lender is confirming that: • no Loan Payment was currently past due more than 30 Days; and • the Lender or its agents did not provide the funds to bring and/or keep the Loan current or to bring about the appearance of an acceptable payment history. (E) Upfront Insurance Premium Not Required The Title I Property Improvement Loan program does not require a UFIP. (F) Annual Premium Charges HUD requires that payment be made within 25 Days from the date of each billing statement. The billing statement will specify the payment due date. Lenders must follow procedures for Annual Insurance Premium and Billing and Remittance. iv. Inspection Requirements for Loans Pending Closing or Insurance in Presidentially-Declared Major Disaster Areas All Properties with pending Loan closing or insurance in Presidentially-Declared Major Disaster Areas (PDMDA) must have a damage inspection report that identifies and quantifies any dwelling damage. The report must be dated after the Incident Period (as defined by FEMA). FHA does not require a specific form for a damage inspection report. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 988 Last Revised: 11/26/2025 Streamline Refinances are allowed to proceed to closing and/or insurance without any additional requirements. Lenders must ensure that any damage identified on the report is repaired and that the Property is restored to pre-disaster condition prior to submitting for insurance endorsement. FHA does not require that utilities are on at the time of this inspection if they have not yet been restored for an area. v. Property Improvement Period The property improvement period starts after the Loan closes. For Direct Loans the improvement period begins when the loan proceeds are disbursed. For Dealer Loans, the improvement period begins before the loan proceeds are disbursed. Property improvements must be completed within six months of loan closing. vi. Completion Certificate Form HUD-56002 is required for all Title I Property Improvement Loans, with exceptions as described below. (A) Standard The Lender must obtain form HUD-56002 for all Property Improvement Loans. The Completion Certificate must be signed only after the improvement work is completed. For Direct Loans, only the Borrower is required to sign. The Dealer/contractor may sign the Completion Certificate, but this is not required. For Dealer Loans, the Borrower and Dealer must sign prior to Disbursement of loan funds. (B) Lender Responsibility The Lender must provide the Borrower(s) with a Completion Certificate and instructions regarding when and how it should be returned to the Lender. The Lender must track the status of the Completion Certificates and follow up with the Borrowers as necessary to ensure that it has a properly completed Completion Certificate. The Borrower must submit the Completion Certificate to the Lender not later than 6 months after disbursement of the loan proceeds, with one six-month extension if necessary. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 989 Last Revised: 11/26/2025 (1) Extension of Improvement Period The Lender may grant an extension of this deadline for up to an additional six months. The Lender must document any time extensions that it grants in the case binder. If the Borrower does not submit the Completion Certificate within these time limits, the Lender should conduct an onsite inspection. If the Borrower will not cooperate in permitting an onsite inspection or if the inspection determines that the improvements were not completed, the Lender must send a report of noncompliance to HUD. (2) Exception for Government Agencies and Nonprofits The Borrower is not required to submit a Completion Certificate for a Direct Property Improvement Loan made by or on behalf of a: • state or local government agency; or • nonprofit organization if the loan proceeds are held in an escrow account pending completion of the improvements, and if the loan proceeds are disbursed from the escrow account in stages, with the written approval of the Borrower and based on the percentage of work completed. (C) Borrower’s Certification of Completion of Work The Borrower must sign a form HUD-56002 to certify that: 1. The loan proceeds have been spent on property improvements that are eligible under the Title I regulations and in accordance with the contract or cost estimate furnished to the lender with my (our) credit application. 2. The property improvements have been completed in general accordance with the contract or cost estimate to my (our) satisfaction. 3. I/We have not obtained and will not receive any cash payment, rebate, cash bonus, sales commission, or anything of value in excess of $25 from the dealer or contractor as an inducement to enter into the loan transaction. 4. I/We understand that the selection of the dealer or contractor and the acceptance of the materials used and the work performed is my (our) responsibility; and HUD does not guarantee the quality or workmanship of the property improvements. (D) Dealer’s Certification of Completion of Work By signing, the Dealer/contractor certifies that: II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 990 Last Revised: 11/26/2025 1. The property improvements are eligible under the Title I regulations and in accordance with the contract or cost estimate furnished to the borrowers. 2. The property improvements have been completed in general accordance with the contract or cost estimate and to the satisfaction of the borrowers. 3. The borrowers have not been given or promised any cash payment, rebate, cash bonus, sales commission, or anything of value in excess of $25 as an inducement to enter into this loan transaction (except for any discount points paid by the undersigned to the lender). 4. Any discount points paid by the undersigned dealer are from the dealer’s own resources and will not be reimbursed by the borrowers or any other party. 5. The borrowers signed this certificate after completion of the property improvements, and all signatures on this certificate are genuine. (E) Failure to Sign Completion Certificate or Improvements Not Completed The Borrower must submit the signed form HUD-56002 to the Lender promptly upon the completion of the improvements. If the Borrower does not submit the Completion Certificate upon completion of the improvements or within minimum time limits for completing the improvements, the Lender must conduct an onsite property inspection. If the Borrower will not cooperate in permitting an onsite inspection or if the inspection determines that the improvements were not completed, the Lender must make a Report of Non-compliant Activities to report Title I Loan Findings to FHA. The report must detail the problem, and must contain the following information to assist in any investigation: borrower name, borrower address, borrower telephone number, loan amount, loan date, inspection date, lender loan number, loan officer name, dealer name, dealer address, dealer telephone number, and dealer Taxpayer Identification Number (TIN). The Lender must send the report to: Housing Office of Lender Activities and Program Compliance Attn: Director, Quality Assurance Division Department of Housing and Urban Development 451 7th Street, S.W. Washington, DC 20410 Insurance on the Loan will stay in effect unless the non-compliant activity was caused or sanctioned by an employee of the Lender, and provided that the promissory Note II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 991 Last Revised: 11/26/2025 or any required lien on the Property was not invalidated or made legally unenforceable by the noncompliance. vii. Post-Disbursement Onsite Property Inspection Requirement The purpose of the inspection is to verify the eligibility of the improvements and whether the work has been completed. The Lender or its agent must conduct an inspection of improvements for: • Title I Loans where the principal obligation is $7,500 or more; and • any unsecured Direct Loan if the Borrower fails to submit a form HUD-56002. The Lender’s fee for inspection of the Property must be an amount that is reasonable and customary for the area, not to exceed the maximum financeable limit for inspections. (A) Inspector Qualifications The inspection may be conducted by an employee of the Lender or by the Lender’s agent. The Lender may also accept an inspection conducted by local authority. Through education or work experience, the inspector must be qualified to evaluate contracts or work estimates and to perform property inspections. There must be an “arm’s length” relationship between any inspector and the contractor. (B) Deadline for Property Inspection For a Dealer Loan, the inspection must be completed within 60 Days after the date of Disbursement. For a Direct Loan, the inspection must be completed within 60 Days after the Lender receives the form HUD-56002, or as soon as the Lender determines that the Borrower is unwilling to cooperate in submitting a form HUD-56002. (C) Documenting the Inspection The Lender must document the inspection. This documentation must include the following information: • date of the inspection; • name of the inspector; • name of the Borrower; • property address; • date of the Note; • loan amount; • name of the Dealer/contractor (if a Dealer Loan); • a description of the improvements; II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 992 Last Revised: 11/26/2025 • photographs of the improvements, if submitted by the inspector; and • the inspector’s opinion as to whether cost of improvements are commensurate with improvements inspected. The inspection report must either identify improvements that were completed and/or incomplete. Incomplete work may be described in terms of specific items in the work plan, percentage of completion, or an estimate regarding the dollar value of the completed improvements. The Lender is responsible for reviewing the inspection report and ensuring that there is no evidence of inconsistency between the photographs and the narratives. (D) Incomplete Improvements If the inspection determines that the contracted improvements were not completed, the Lender should seek an explanation from the Borrower (and Dealer if applicable). If the Lender is able to confirm that the proceeds of the Loan were used exclusively for eligible improvements and eligible fees or charges, the Lender should document in the case binder regarding this determination. This Lender’s documentation should identify items from the work proposal that were not completed. viii. Reporting Misuse of Proceeds If the Lender determines that any portion of the loan proceeds was used for ineligible improvements or for ineligible purposes, they must make a Report of Non-compliant Activities to report Title I Loan Findings to FHA. If Findings of noncompliance relate to an approved Dealer used in the Dealer Loan process, the Lender must determine whether it should terminate the Dealer from participation in the Title I program. The report must detail the problem, and must contain the following information to assist in any investigation: borrower name, borrower address, borrower telephone number, loan amount, loan date, inspection date, lender loan number, loan officer name, dealer name, dealer address, dealer telephone number, and dealer TIN. The Lender must send the report to: U.S. Department of Housing and Urban Development Quality Assurance Division 451 Seventh St., SW Washington, DC 20410 II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 993 Last Revised: 11/26/2025 Insurance on the Loan will stay in effect unless the non-compliant activity was caused or sanctioned by an employee of the Lender, and provided that the promissory Note or any required lien on the Property was not invalidated or made legally unenforceable by the noncompliance.

Source: FHA Single Family Housing Policy Handbook 4000.1, Part II — f. Post-closing and Insurance (05/09/2022) · source URL · snapshot 8c03836f77f317e1