FHA 203(k) Loans: Standard vs. Limited

If you are looking to make some renovations or even build your dream home from the ground up, then you may want to know about construction loans. Construction loans are great financing solutions that provide homeowners with the tools and guidance that they may need in order to build a new home or complete renovation projects within their existing home.

203(k) renovation loans are designed to help borrowers finance home repairs plus the purchase or refinance of a primary residence. These types of construction loans are backed by the Federal Housing Administration (FHA) which is a U.S. agency that offers mortgage insurance to FHA-approved lenders who meet certain qualifications. This means that if a borrower were to default on a loan, the FHA would pay the lender a claim amount. Due to that guarantee, more individuals and families can qualify for a mortgage to buy a home.

What is an FHA 203(k) Loan?

When searching for your dream home, you may have run into a particular property that checked almost every single box on your list but may have needed a few key updates that could truly transform it into your dream home. Or you may have already purchased a home and are ready to make those updates you’ve been wanting.

An FHA 203(k) loan enables homeowners to borrow money using one loan for their home improvements. FHA 203(k) loans include a number of benefits including allowing a variety of home improvements with as little as a 3.5% down payment and low closing costs.

FHA 203(k) Guidelines

There are two types of FHA 203(k) loans. The first is a standard 203(k) which is used for properties that need major remodeling or structural repairs. The second is the Limited 203(k) which is commonly used for new roofing, new appliances, or cosmetic repairs such as painting.

Standard 203(k)

This program provides financing for major renovations to be made on a new or existing home. 

• A minimum repair amount of $5,000, no set maximum amount
• Can roll 6 months of payments into the loan
• Available for purchase or refinance
• Loan amounts up to 110% of the home’s after-improved appraisal value

Some commonly financed projects include:

• Full kitchen or bathroom remodels
• Structural additions or alterations
• New flooring or carpet
• Energy efficient upgrades
• Appliance replacement or upgrades

Limited 203(k)

This program provides financing for new and existing homes that can be remodeled, repaired, or updated for $35,000 or less.

• Quickly tap into cash to pay for minor property improvements
• Great for cosmetic repairs or upgrades
• Available for purchase or refinance
• Loan amounts up to 110% of the home’s after-improved appraised value

Some commonly financed projects include:

• Cosmetic remodeling of kitchen or bathroom
• New flooring or carpet
• New flooring or carpet
• Plumbing repairs
• Window and door replacement

You may also click here to view a full list of FHA requirements.

How to Apply for an FHA 203(k) Loan

1. Find an FHA 203(k) approved lender
2. Apply for your home loan and get pre-approved
3. Find your property or decide on a renovation project for your existing home
4. Locate a licensed contractor who can help bring your remodeling plans to life
5. Your contractor will need to write an estimate of work needed and materials required which will be submitted to your appraiser
6. Your lender will get your home appraised

For further information on FHA 203(k) loans talk to one of our loan experts, they can also provide you with a full list of eligible home improvements and program details.