Buying a fixer-upper, or a house that needs some renovations, can be a really rewarding experience. Not only do you get more house for your spend, but you’ll build a bond with it­ – literally. You’ll be investing your time and energy into transforming it into your very own home. That will leave you with a strong sense of satisfaction and an unmatched connection to your new place.

Since there’s already a lot to coordinate with a home renovation project, the last thing you’ll want to stress over is your financing. A great financing option exists just for this scenario, though – the FHA 203(k) loan. This special type of construction loan, backed by the Federal Housing Administration, allows you to borrow the purchase price of your new home, or refinance your current home, with the ability to add in funds to use for renovations.

We will explore the mechanics of FHA 203(k) loans, what types of renovation projects they’re best suited for, and the typical eligibility requirements. You can put your tools and blueprints aside for a little bit while we look at this unique financing option.

What is an FHA 203(k) Loan?

FHA 203(k) loans are a special sub-set of construction loans guaranteed by the Federal Housing Administration. They allow borrowers to finance the purchase of a property plus rehabilitation and renovation costs.

This is an important function of FHA 203(k) loans because otherwise you would need to obtain financing for the purchase and then figure out additional financing to fund your renovations.

The fact that 203(k) loans are backed by the FHA is also an important point. Because of this, lenders can offer them to even more buyers since the FHA insures the loans and sets broad eligibility criteria.

How do 203(k) Mortgage Rehab Loans Work?

At this point, you might be thinking, “Yes! I just found out there’s a loan program for exactly what I’m trying to accomplish.” The next step is narrowing down which type of 203(k) loan will be best for your home renovation plan.

There is the Standard 203(k) loan, which is used for major structural work, requiring a minimum of $5,000 in repairs and the hire of a HUD consultant to oversee the renovation process.

Another option is the Limited 203(k) loan, providing up to $35,000 for renovations that don’t encompass major structural renovations. This option is ideal for cosmetic repairs or home upgrades.

What Types of Renovation Projects are Best Suited for 203(k) Loans?

Now that you’ve gained an understanding of the premise and benefits of 203(k) financing, you can begin to decide if this mortgage financing option will support your goals in either purchasing a fixer-upper or renovating your current home.

Here are some typical projects financed using FHA Limited 203(k) loans:

  • Cosmetic remodeling of kitchen or bathroom
  • New flooring or carpet
  • Window and door replacement
  • Installing or repairing your roof, gutters, and downspouts
  • Major landscaping improvements

If you’re looking at larger scale home improvements, like the following, an FHA Standard 203(k) will be the option for you:

  • Full kitchen or bathroom remodels
  • Plumbing or sewer system repairs
  • Structural additions or alterations
  • Energy-efficient upgrades
  • Appliance replacement or upgrades

What are the Eligibility Requirements for a 203(k) Loan?

The 203(k) loan has a broad eligibility range thanks to its roots as an FHA mortgage. Borrowers using this type of loan will need to:

  • Make a minimum down payment of 3.5% if you have a credit score of 580 or higher.
  • Make a minimum down payment of 10% if you have a credit score in the 500 to 579 range.
  • Maintain primary residency in the renovated home.

It’s also subject to FHFA loan limits, which sets a maximum for the loan amount you can borrow.

Why Should I Finance my Renovations with an FHA 203(k) Mortgage?

While we’ve covered how these special FHA construction mortgages work, you may still wonder how 203(k) loans compare to other financing tools you could use to purchase and renovate your next home.

Some other options borrowers use to finance repairs include home equity loans and home equity lines of credit (HELOCs), typical construction loans, or cash-out refinances. For any of these, you’ll need to have either enough equity in your home already, or you’ll need to refinance once the construction phase is complete.

FHA 203(k) loans are unique in that they allow you to both finance the purchase of your home and your renovations in one transaction, saving you the hassle and cost of refinancing later, or needing the up-front equity.


Our team includes some of the best and most experienced loan officers specializing in construction and renovation financing. Put that expertise to work for you! Connect with us for a free consultation to help you get started on your fixer-upper purchase or home renovation project.

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The included content is intended for informational purposes only and should not be relied upon as professional advice. Additional terms and conditions apply. Not all applicants will qualify. Consult with a finance professional for tax advice or a mortgage professional to address your mortgage questions or concerns. This is an advertisement. Prepared 01/13/2022.