FHA 203(k) Home Loans

What are FHA 203(k) loans for?

This kind of loan is a rehabilitation loan, intended to allow someone to buy or refinance on a home that needs repair or renovation. For purchases, this loan not only finances the purchase, but also covers the cost of qualified repairs. These loans are provided by Federal Housing Administration (FHA) approved lenders. The loans are insured by HUD, the U.S. Department of Housing and Urban Development.

What are the Benefits?

Home repairs can be very costly, quickly draining your savings or racking up debt. By contrast, an FHA 203(k) loan combines your purchase and repairs into a single fixed or adjustable rate mortgage, potentially saving you money and making your finances easier to manage.

Using this type of loan opens up the possibility of purchasing a home in need of repair, possibly for less than the market value of similar homes in the area. You can also purchase a home and renovate it to your liking, turning it into something that checks off all the boxes on your wishlist. The renovations may also increase the future value of the home and make it more easily resaleable.

Bear in mind that requirements for obtaining an FHA 203(k) loan are stricter, and the process is more involved, potentially including more upfront costs.

Types of FHA 203(k) Loans

Limited 203(k)

This type of loan gives you fast access to funds, for less extensive repairs and renovations. There are no minimum loan amounts, and you can borrow up to a maximum of $35,000. Many types of repairs qualify for this program, ranging from: roof repair; repair of existing HVAC, plumbing and electrical systems; flooring; interior and exterior painting, and more. New construction and other major structural repairs are ineligible.

Standard 203(k)

This type of loan is for repairs of at least $5,000, but there is no maximum. A HUD representative will inspect the property, consult on the repairs and costs associated, and oversee the project. All repairs covered by Limited 203(k) loans are covered, as well as certain kinds of structural repair and new construction, update of kitchens and bathrooms (including appliances), remediation of safety hazards, and accessibility improvements for the handicapped.

Borrower Eligibility

Eligible Borrowers:

U.S. Citizens or permanent resident aliens

Ineligible Borrowers:

Foreign nationals, Corporations and LLCs

Property Eligibility

Eligible Properties:

1-to-4 unit attached/detached primary residences and planned unit developments
FHA-approved condos
Modular homes (must have a permanent foundation)
Mixed-use developments (additional conditions apply)

Ineligible Properties:

Co-ops
New construction
Manufactured houses
Properties with non-conforming construction that can’t be remedied

Other Requirements and Repair Eligibility

In order to be eligible, the subject property must be owner-occupied (more simply, this cannot be a second home or an investment property). The loan must be part of a purchase or refinance. Transaction must not involve buying from a relative or business associate. Additional appraisal and construction requirements may need to be met.

Eligible Major Structural Repairs:

Structural alterations
New bathrooms
Finishing of attics/basements
Repair of termite damage
Repair of detached garages
Construction of new attached garage
Chimneys/skylights
Update of kitchens/bathrooms
Remediation of safety hazards
HVAC repair or replacement
Electrical and plumbing improvements
Grading and drainage improvement
Major landscaping improvement
Swimming pool repair (minimum cost $1,500)

Eligible Non-Structural Repairs:

Roofs
Gutters and downspouts
Decks, patios, and porches
Repair of existing HVAC
Plumbing/electrical
Flooring and carpeting
Interior and exterior painting
Purchase and installation of appliances
Accessibility improvements for the handicapped
Non-structural basement finishing and waterproofing
Weatherization improvements
Replacement of windows/doors
Residing
Septic/wells