source:
  type: guide
  id: hud-4000-1-ii-e-closing-and-disbursement
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — e. Closing
    and Disbursement (05/08/2025)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part II — e. Closing
    and Disbursement (05/08/2025).
  coverage_tier: operative
obligations:
- id: hud-4000-1-ii-e-closing-and-disbursement-full
  canonical_id: hud-4000-1-ii-e-closing-and-disbursement-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part II — e. Closing
    and Disbursement (05/08/2025)
  type: do
  tags:
  - regulator-direct
  - fha
  - hud-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — e. Closing
      and Disbursement (05/08/2025)
    source_class: hud-handbook
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000-1
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-05-23T00:28:40Z'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: 'e. Closing and Disbursement (05/08/2025) i. Borrower Identification
      The Lender must include a statement that it has verified the Borrower’s identity
      using valid government-issued photo identification at or prior to closing the
      Loan, or the Lender may choose to include a copy of such photo identification
      as documentation. ii. Lender Closing Requirements Before disbursing the proceeds
      of a Title I Property Improvement Loan, the Lender must ensure, at a minimum,
      that the following conditions have been met: • the Borrower is eligible for
      a Title I Property Improvement Loan; • the interest of the Borrower in the Property
      is valid, through such title or other evidence as are generally acceptable to
      prudent lending institutions and leading attorneys in the community where the
      Property is located; • the proposed use of the loan proceeds is eligible and
      adequately documented; • the case binder contains a valid Note and security
      instrument (if required); and • all other required documents relating to the
      loan transaction. (A) Required Documents for Case Binder The Lender must confirm
      that the case binder is complete and that the following documents, if applicable
      to the Loan, have been obtained for retention in the case binder. The required
      documents are: • URLA (Fannie Mae Form 1003/Freddie Mac Form 65) and form HUD-92900-
      TI; • proof of identity and SSN verification; • Notice to Borrower of HUD’s
      Role in Title I Loans; • work contracts, estimates, and/or invoices describing
      the improvements; • evidence of the Borrower’s interest in the Property; • Settlement
      Statement, or similar legal document, reflecting Disbursement(s), itemized loan
      fees and charges; • Title I Loan summary/underwriter’s worksheet detailing the
      amount financed, calculation of qualifying ratio, and any compensating factors
      used; • Note or assigned retail installment contract; • security instrument
      (if applicable); • Truth-in-Lending Disclosure (if applicable); • credit report(s);
      • loan verification if not reflected on credit report; • non-traditional references,
      if applicable; • explanation for any adverse credit information and inquiries
      within recent 90 Days; • asset verification including a worksheet or other document
      with Initial Payment itemization; II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1
      980 Last Revised: 11/26/2025 • gift letter (if applicable); • verification of
      employment; • income verification; • clearance in HUD’s LDP List, and HUD’s
      CAIVRS; • form HUD-56002, Completion Certificate for Property Improvements;
      • inspection report for improvements (required for loan amounts greater than
      $7500); • IRS Form 4506 or 4506-C executed by the Borrower; • Life of Loan Flood
      Certification; • payment history on subject Loan if Loan Payments have begun;
      and • Lender processing and servicing notes. (B) Title Insurance At its option,
      the Lender may obtain title insurance for Property treated as real estate. (C)
      Disbursement Date Disbursement Date refers to the date proceeds of the Loan
      are made available to the Borrower. (D) Signatures The Lender must ensure that
      the loan Note, and all closing documents are signed by all required parties
      in accordance with the Borrower Eligibility. (E) Use of Power of Attorney at
      Closing A Borrower may designate an attorney-in-fact to use a POA to sign documents
      on their behalf at closing, including the Disclosure Notice to Borrower. Unless
      required by applicable state law, as stated below, or they are the Borrower’s
      Family Member, none of the following persons connected to the transaction may
      sign the security instrument or Note as the attorney-in-fact under a POA: •
      the Lender, or any employee or Affiliate; • the loan originator, or employer
      or employee; • the title insurance company providing the title insurance policy,
      the title agent closing the Loan, or any of their Affiliates; or • any real
      estate agent or any person affiliated with such real estate agent. Exception
      Closing documents may be signed by an attorney-in-fact who is connected to the
      transaction if the POA expressly authorizes the attorney-in-fact to execute
      the required documents on behalf of a Borrower, only if the Borrower, to the
      satisfaction II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured
      Programs 2. Property Improvement Loan Program Handbook 4000.1 981 Last Revised:
      11/26/2025 of the attorney-in-fact in a recorded interactive session conducted
      via the Internet, has: • confirmed their identity; and • reaffirmed, after an
      opportunity to review the required loan documents, their agreement to the terms
      and conditions of the required loan documents evidencing such transaction and
      to the execution of such required Loan by such attorney-in-fact. The Lender
      must obtain a copy of the URLA (Fannie Mae Form 1003/Freddie Mac Form 65) and
      form HUD-92900-TI signed by the Borrower or POA in accordance with Signature
      Requirements for all Application Forms. (F) Electronic Signatures See Policy
      on Use of Electronic Signatures. (G) Disbursement of Loan Proceeds (1) Standard
      The Lender must verify that loan proceeds are disbursed in the proper amount.
      The Lender must disburse the loan proceeds: • solely to the Borrower; • jointly
      to the Borrower and the Dealer; or • jointly to the Borrower and other parties
      to the transaction. When the Property Improvement Loan is made by or on behalf
      of a state or local government agency or a nonprofit organization: • form HUD-56002
      is not required; • the loan proceeds are held in an escrow account pending completion
      of the improvements; and • the loan proceeds may be disbursed to the contractor
      from the escrow account in stages with the written approval of the Borrower
      and based upon the percentage of work completed. (2) Required Documentation
      The Lender must obtain and include in the case binder the final disbursement
      document or other legal documentation detailing fees, charges, and Disbursement
      and to whom funds were disbursed. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1
      982 Last Revised: 11/26/2025 iii. Closing Documents (A) Note (1) Definition
      Note refers to any form of credit instrument commonly used in a jurisdiction
      to evidence the secured Loan. (2) Standard (a) Form The Lender must ensure that
      the Note complies with all applicable state and local requirements for creating
      a recordable and enforceable Loan, and an enforceable Note. HUD does not provide
      Note forms or prescribe a particular Note format. The Lender must ensure that
      the Note and all other documents evidencing the loan transaction are in compliance
      with applicable federal, state, and local laws. The Note must: • state the principal
      amount of the Loan and the annual rate of interest; • bear the signature of
      each Borrower and of any co-maker or Co-signer; and • be valid and enforceable
      against the Borrower and any co-maker or Co-signer. (b) Interest Rate The interest
      rate is negotiated between the Lender and the Borrower. The interest rate must
      be fixed for the full term of the Loan and must be stated in the Note or retail
      sales installment contract. Interest on the Loan must accrue from the date of
      the Loan, and be calculated on a simple interest basis. Adjustable Rate Mortgage
      products are not permitted for FHA Title I Property Improvement Loans. (c) Temporary
      Interest Rate Buydown Requirements Temporary interest rate buydowns are not
      permitted. (d) Signature The Borrower and any co-maker or Co-signer must execute
      the Note for the full amount of the loan obligation. Although the Borrower may
      sign the Note on an earlier date, the date of the Loan must be the date that
      the loan proceeds II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title
      I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 983
      Last Revised: 11/26/2025 are disbursed by the Loan. Such date must be entered
      on the Note when Disbursement occurs. (e) Payments on the Loan The Note must
      provide for equal installment payments due monthly. The Note may provide for
      the first and/or final payments to vary in amount but not to exceed 1.5 times
      the regular installment. Where the Borrower has an irregular flow of income
      the Note may be payable at quarterly or semi-annual intervals corresponding
      with the Borrower’s flow of income. The first scheduled Loan Payment must be
      due no later than two months from the date of the Loan. (f) Default Provision
      The Note must contain a provision for acceleration of maturity, at the option
      of the holder, upon a monetary Default by the Borrower. (g) Late Charges The
      Note may provide for a Late Charge unless specifically precluded by state law.
      The Late Charge may be imposed only for a payment which is in arrears for the
      greater of 15 Days or the number of Days required by applicable state law. Late
      Charges must be billed to the Borrower or reflected in the payment coupon. Evidence
      of Late Charges paid by the Borrower must be in the case binder if an insurance
      claim is made. (i) Amount of Late Charge The Late Charge must not exceed the
      lesser of 5 percent for each installment of P&I, up to a maximum of $10 per
      installment, or the maximum amount permitted by applicable state law. (ii) Method
      of Payment Payment of any Late Charge cannot be deducted from the monthly payment
      of P&I. Late payment fees must be calculated and shown as an additional charge
      to the Borrower. (iii)Daily Interest in Lieu of Late Charges In lieu of Late
      Charges, the Note may provide for interest to accrue on installments in arrears,
      continuing daily, based on the interest rate in the Note. II. ORIGINATION THROUGH
      POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement
      Loan Program Handbook 4000.1 984 Last Revised: 11/26/2025 (h) Prepayment Provision
      Borrowers cannot be charged a prepayment penalty on any FHA Title I Property
      Improvement Loan. Lenders may charge reasonable and customary charges for recording
      a release of a security interest in the Property if permitted by state law.
      (B) Security Instrument (1) Definition Security Instrument refers to any legal
      instrument that is commonly used in a jurisdiction in connection with a Loan
      secured by a Title I Property Improvement Loan. (2) Standard Title I Property
      Improvement Loans must be secured against the subject Property if required by
      Valid Lien Requirements. When lien security is required, the Loan must be secured
      by a recorded lien on the improved subject Property and evidenced by a Mortgage
      or deed of trust, as governed by state laws. A chattel mortgage, financing statement,
      Uniform Commercial Code (UCC)-1 filing, or similar lien against the property
      improvements only is not acceptable. (3) Required Documentation The lien must
      be evidenced by a Loan or Mortgage, executed by the Borrower and all other owners
      in Fee Simple. (4) Executing the Security Instrument The individual borrower
      name(s) must appear on the security instrument, property deed, and title. While
      an eligible Borrower need only have a “one-half” interest in the Property the
      Borrower plus all other owners or parties who have a legal Fee Simple interest
      in the Property must execute the security instrument in order to establish a
      valid and enforceable lien. If a Borrower is a lessee, the Borrower and all
      deeded owners of the Property must execute the Loan. If a Borrower is a land
      installment contract purchaser, the Borrower, all deeded owners, and all intervening
      contract sellers must execute the security instrument. II. ORIGINATION THROUGH
      POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement
      Loan Program Handbook 4000.1 985 Last Revised: 11/26/2025 (5) Recording and
      Perfecting the Security The Lender must ensure that the legal description of
      the Property as recited in the Loan (or deed of trust) is accurate and that
      the Loan creates a valid and enforceable lien on the Real Property in the jurisdiction
      in which the Property is located. The Loan must be recorded and perfected in
      the manner specified by applicable state law in the state where the Property
      is located.'
  judgment: false
