First of all let me say "I am NOT a mortgage lender, and I have NO IDEA whether or not this would or would not be considered mortgage fraud. I'm just relaying information. My guess is that most lenders are afraid of being complicit in mortgage fraud, and rightly so - the regulators are watching their industry much closer these days and fines have gotten hefty. If the repairs are legitimate and the intent is honest, I can understand that some may see no harm in it although the lenders may not care about this. I've heard of someone utilizing the contractor they chose to do repairs and estimates, to also add to his estimate the approximate cost of materials only (no labor) for the repairs that YOU intend to do yourself. I assume their thinking was that this way there is no money that could be construed as being misappropriated. But read up on it, and protect yourself, because that person may have been breaking the law, I am not totally versed in the wording regarding that particular type of loan.