For both types of 203(k) loans, Standard or Limited, you will need to have something called a Contingency Fund. The Contingency Fund is 10% of the actual repair amount. This money is set aside to cover unplanned repairs that become necessary due to health or safety issues.
Although this question comes up frequently, this money cannot be used for building material changes or repairs. This amount is typically part of your total renovation loan. If all the renovations go as planned the entire balance, or the remaining unused balance, will be applied as a principal reduction at close.
If the borrowers funds the contingency fund themselves, they can get their money back or apply it to additional renovations. However, this is only if they funded the contingency fund instead of financing it.