FHA 203K Loans

FHA's 203K loan program is designed to finance the purchase and renovation of your home, all in one loan.

The FHA 203K loan lets you purchase or refinance and rehabilitate a property with one loan closing. The projected rehabilitation costs are held in an escrow account and disbursed as work is completed and inspected. The loan amount is based on the lower of the projected market value following repairs or purchase price plus renovation costs.

Advantages of 203K

  • Loan amount based on the home value including renovations
  • Only one loan needed to both purchase and improve
  • Refinance and rehab your own home
  • Can be used to buy property otherwise not eligible for financing

Benefits of a 203K Loan

  • Properties that are sold “as-is” often would not qualify for a standard FHA loan. However, 203K loans are designed to improve, update and modernize the home.
  • The loan enables you to purchase foreclosure properties that require repairs. Most HUD Foreclosure properties could benefit from a 203K loan.
  • You can purchase a home that does not require repairs and finance the cost of “modernization” or cosmetic repairs. (See eligible improvements.)
  • The loan allows for 1-4 unit dwellings, including condominiums.
  • Where zoning allows, a 203K loan can be used to convert a single family dwelling to 2-4 units and vice versa. (See eligible properties.)
  • Up to 110% (100% on condominiums) of the “as-is” value of the home may be used as basis for mortgage calculations. (The appropriate LTV factor is then applied.)
  • Up to six months of PITI (principal, interest, tax and insurance) payments can be financed to assist those who would otherwise be required to make double-housing payments. Consultant will determine the number of months house will be uninhabitable for financing of payments. (Consultant K only)
  • Buyers who purchased a property with cash can use the 203K program to complete repairs/ modernization and replenish funds used at the time of purchase. Mortgage must close within 6 months of cash purchase.
  • The loan can be used for complete reconstruction of a home on its original foundation.
  • Properties in “below-average” condition can be upgraded through repairs and maintenance (i.e., new roof, fix broken windows, and lead paint abatement). Increase square footage by building an addition, building a second floor or finishing a basement or attic space. (Consultant K only.)

Tip: house must be one year old to be considered for a renovation loan.

Is a 203K Loan Right for You?

  1. Buy a "Fixer-upper" or REO property needing renovation
  2. Get funds to both purchase and upgrade your dream home
  3. Refinance and renovate your existing home

Who Qualifies?

  • A minimum down payment of 3.5%
  • A credit score of 640 or higher
  • You currently have no other FHA loans
  • You DO NOT have to be a
    first-time buyer

Ask your loan officer about additional requirements.
FHA Loan limits vary by market. They currently range from $271,050 to $729,750 for a single family property. To check the current loan limits by county, go to entp.hud.gov or check with your loan officer for the current limits.


The Step-by-Step Process

1. Meet with your loan officer to get pre-approved for the FHA loan

We will go over a loan application and will review documentation that supports your application to determine the amount you will be approved for. We will discuss your different loan options and determine the best loan program to fit your needs.

NOTE: The purchase contract should clearly indicate the loan type to be an FHA 203K.

2. Your purchase contract is accepted by the seller

Your Realtor will forward the accepted contract to your loan officer to set up your financing file.  This is when the clock starts ticking.  You will need to get with your contractor and/or your FHA consultant to finalize the estimate and scope of work in which is going to be done.  Any other required or desired inspections, such as a home inspection, termite inspection, well or septic inspections, roof inspection or HVAC inspections, will be ordered at this time.

3. Choose your contractor and obtain bids

You must research and select contractors with whom you will feel comfortable. Contractors must provide specific documentation as previously listed to be accepted for use in the renovation program. You will need to provide a complete contractor package for each contractor completing work on this project.

4. Insurance

In most cases, a homeowners policy will suffice. On some occasions a builders policy will be required. An insurance agent can provide guidance here.

5. Once all conditions to the loan have been met, the loan will close

At closing the seller and Realtors are paid in full. The funds for the repairs are placed in an escrow account. If mortgage payments are included in the escrow, the payments will be paid when they are due. Repairs must start within 30 days of closing and be completed within six months.