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What to Know About a 203k Rehab Loan

By Bill Gassett | August 30, 2021

203k FHA Loans Explained

Are you considering buying a home that needs work? When buying a fixer-upper, one of your primary considerations should be how you will finance the project. One of the better options is what's known as an FHA 203k loan.

FHA 203K Mortgage is the term that designates funding dedicated to purchasing and refurbishing your primary residence home. It is a more relaxed type of loan since the U.S. government guarantees it.

The beauty of FHA 203k loans is that you can combine the financing of the purchase of a home and the cost to make repairs and renovations. You will only need to get one loan with this type of mortgage instead of getting two.

Let's take a look at all the things you should know about this type of financing.

What Should You Know about the FHA 203K Mortgage?

If you want money to buy a home to live in with your entire family, refinance it, or have this house renovated and improved, the easy solution is to apply for an FHA 203K mortgage. It allows you to pay for the renovations in one loan.

It is an affordable financing option for many buyers. It can give you access to better living areas, increasing the number of options for the purchase.

The good news is that the Federal Housing Administration guarantees this type of loan. This means that their terms and conditions and the qualification requirements tend to be more lenient.

You will need to follow the steps of mortgage approval like conventional loans but will also have to detail other things such as the renovation costs.

How do FHA 203k loans work

How Does the FHA 203k Mortgage Work?

This type of financing comes in two versions. There is the standard FHA version and the limited version, which is also referred to as “streamline.” In both cases, you receive the option to refinance.

Loan Limitation

All FHA 203k loans have specific rules regarding the amount you are approved as a loan for renovation. Keep in mind that upgrades to your home do qualify. However, what you can do does not include luxury appointments, like swimming pools or gazebos.

Here are the loan limitations for each FHA mortgage version:

  • For the FHA 203k Standard: The renovations must amount to a minimum of $5,000. You can put on your restoration list the major structural undertakings that need to be completed. When you want to go for a standard FHA 203k loan, you must first hire a HUD consultant to supervise all work in the project.
  • For the FHA 203k Limited: You can borrow up to $35,000 for the refurbishment. This version of the FHA 203k mortgage doesn’t accept the structural repair works for your house.

Here is a general list of the type of works that you can cover with an FHA 203(k) mortgage. Keep in mind that this is just a selection, and many more others may qualify.

  • Improvements concerning utilities
  • Improvements to make the home more aesthetically appealing
  • Removing safety and health issues
  • Plumbing, sewerage works
  • Repairing or replacement for the roof, downspouts, gutters
  • Repairing or replacement of flooring
  • Landscaping improvements
  • Facilities for disabled persons
  • Energy-efficiency upgrades.

It is advantageous to start your renovation project immediately after the house purchase. Consequently, you need to get a good deal with a contractor in advance. Each step involves paperwork and procedures that might take some time, and you only have an interval of six months to complete the project.

Do You Qualify for an FHA 203k loan?

As we have previously said, this is a more relaxed loan when compared to other usual types. However, it is a very niche mortgage, and the borrowing limits are not that permissive.

What do you need to qualify?

  • A credit score of a minimum of 500 points. This is the lowest minimum because some lenders have an even higher limit. You need to have at least 500 score points if you want to have a good chance of getting this loan.
  • The down payment for the FHA 203k loan also depends on your credit score. If you are ranking 580 or more, the down payment required is only 3.5% of the loan. If the credit score is around 500 – 579, you will be asked for a 10% down payment. However, they accept money coming as gifts from family and friends. In any case, you benefit from assistance through homebuyer programs.
  • The maximum amount you could get through FHA 203k reaches $356,362 for low-cost areas and $822,375 for luxury areas. You can consult with a mortgage broker or lender to know the maximum loan amount for your area.
  • If you’ve experienced foreclosure, you don’t have any real chance to receive an FHA 203k mortgage, especially if you have experienced it somewhere during the last three years.

How Do You Get an FHA 203k?

There are a few standard steps that you must follow:

  • Team up with a lender approved by the FHA. Follow all of the traditional steps for getting a mortgage.
  • You will be verified, so you must fill in your Social Security number, plus all possible documents that prove your constant income, your credit score, and any potential debt.

Choose your lender according to your current financial situation and needs. Each one will cover a certain need on the market.

Should You Apply for an FHA 203k?

The FHA 203(k) mortgage is highly appreciated among those searching for a new home, especially if there are still renovations to do after the purchase. However, as with all other similar decisions, there are always pros and cons to analyze before taking this step.


  • The interest rate is lower than for credit cards and personal loans;
  • Covers the mortgage installments for the entire renovation period;
  • The requirements are minimum, a small down payment, and a certain credit score.


  • You are required to get FHA mortgage insurance with this type of rehab loan.
  • With an FHA 203k rehab loan, you can apply only for your primary residence. Investment real estate does not qualify.
  • You'll have to contact a HUD consultant and an experienced contractor for the renovation.
  • You may find out the time to close is longer with this type of financing.

Final Thoughts on FHA 203k Loans

The FHA 203k rehabilitation loan is worth considering for anyone who is buying a home that needs work. Like any loan product, it is vital to do your due diligence. You should now have a much better understanding of how an FHA 203k loan works. Best of luck with your purchase and project.

Bill Gassett is an authority in the real estate industry with 38 years of experience. Bill is well respected for his informative articles for buyers, sellers, and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, the National Association of Realtors, Inman News, Newsbreak, Credit Sesame, Realty Biz News, and his own authoritative resource, Maximum Real Estate Exposure. He has been on of the top RE/MAX agents in New England over the last two decades.
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