The Complete Guide to 203k Loans

FHA 203k loans

Do you want to get a loan to buy a fixer-upper, and get cash to make repairs?

That’s what the FHA 203k Loan Program can do for you.

In this article, we are going to go over everything you need to know about the FHA Section 203(k) program.

Where to find them and how to qualify.

The differences in a standard and streamline 203k mortgage loans. Which types of homes qualify, and more.

Rate Search: Check Current 203k Rates

What is a 203k loan?

203k loans are a type of FHA home renovation loan that includes both the cost of buying a home and the renovation costs. It is given to those who choose to rehab a damaged or older home.

This home purchase and renovation loan is backed by the Federal Housing Administration and funded by 203k mortgage lenders.

There are two types of FHA 203k renovation loans available, standard and streamline.

FHA 203k loan infographic

Pros and Cons of FHA 203k Loans

Pros203k loans

  • Low 3.5% downpayment requirement
  • 640+ credit scores qualify
  • Get extra money to make cosmetic repairs
  • Borrow money to make mortgage payments for up to 6 months
  • Get cash for major repairs with standard 203k loans
  • Adjustable-rate and fixed-rate mortgage available


  • Must hire a professional licensed general contractor (no DIY repairs)
  • Not eligible for investment properties
  • Requires mortgage insurance premiums
  • Extended closing times
  • Construction consultant required
  • Some lenders do not offer them
  • Labor and time-intensive
  • Higher interest rates

Loan Requirements

The home must meet FHA 203(k) eligibility requirements, but the purchaser also needs to meet the criteria set by the Federal Housing Administration to qualify.

  • The lender must be FHA-approved
  • 640 minimum credit score
  • Solid employment history
  • No late payments in the past 12 months
  • No bankruptcies or foreclosures within the past 36 months
  • Proof of income
  • Two years of tax returns
  • 3.5% Downpayment

Eligible Property Types

  • Single-Family Dwelling
  • 1-4 unit homes which have been completed for one year (townhouses and detached homes)
  • 1-4 building condos (interior improvement only)
  • Houses and modular units off-site that can be moved to a property
  • Conversions of single units into 2-4 unit dwellings
  • Tear down or demolished property where at least a portion of the original foundation remains

Standard vs. Streamline

The standard version is for more extensive renovation projects, like structural repairs in which you are not able to occupy the home during construction.

The other type is a streamline FHA 203k loan, which is for cosmetic repairs requiring up to $35,000 in funds.

A purchase contract will be the same as any other only you will want to add that it is contingent on you getting approved.

Streamline 203k Loans

You used to have to get two separate loans to purchase a home and make cosmetic changes or repairs.

With streamline loans, you can now buy a home and borrow money for repairs and have just one mortgage payment.

A streamline 203k refinance doesn’t require a ton of paperwork that is needed for a standard 203k mortgage making it a more straightforward and quicker process.

An appraiser will give you a list of recommended repairs, and in some cases, required repairs.

You will get a bid from a HUD contractor and pass it along to your lender. The maximum cash amount to receive is $35,000.

You will have a time frame to have the repairs completed for the final appraisal. Once the construction is complete, you will be ready for closing.

Type of work allowed:

  • Repair/Replacement of roofs, gutters, and downspouts
  • Existing HVAC systems
  • Electrical and Plumbing systems
  • Painting
  • Flooring
  • Appliances
  • Weatherization
  • Basement waterproofing
  • Repair, replace or add exterior decks, patios, porches
  • Window and door replacement and exterior siding
  • Septic and well repair or replacement
  • Improvements for accessibility
  • Lead-based paint stabilization or abatement of lead-based paint hazards

Standard 203(k) Loans

Just like a streamline, the standard 203k construction loan allows you to get one credit for both the purchase of a home and the cost of the repairs.

The standard 203(k) rehabilitation loan is for homes that require major renovations; there is no limit for the amount of cash you’re able to receive to repairs.

There are more intensive paperwork requirements for the standard 203k loans. Buyers will not be permitted to occupy the property. However, you are allowed to add up to 6 months of mortgage payments into the loan.

You will have a HUD consultant that is assigned to oversee the work that is needed.

The amount of additional paperwork and time involved in these types of loans often discourage many lenders from offering them.

Type of repairs allowed:

  • Major rehabilitation, such as the relocation of a load-bearing wall
  • New construction, including room additions
  • Structural repair
  • Repairs requiring detailed drawings or architectural exhibits
  • Landscaping or similar “site amenity” improvement
  • Any repair requiring a work schedule longer than three (3) months; or rehabilitation activities that require more than two (2) payments per specialized contractor
  • Improvements that need a plan reviewer
  • Improvements that result in work not starting within 30 days after loan closing; or cause the owner to be displaced from the property for more than 30 days during the time the rehabilitation work is being conducted

FHA Loans

FHA home loans are also referred to as Section 203(b). They are the number one type of mortgage used by first-time homebuyers. These loans are for move-in ready homes.

FHA loan requirements are similar to a 203k mortgage loan except for a couple of things.

One of which is the credit score requirement. You can qualify for an FHA mortgage with a 500 credit score with 10% down, and a 580 credit score with 3.5% down.

With a 203k mortgage loan, the minimum credit requirement is a 640 score. The max loan-to-value ratio is 96.5%

203k Refinance

You can refinance your current mortgage into a 203k loan and get the extra cash to make repairs and renovations. The same rules apply to streamline and standard 203k loans.

Instead of having to borrow money on a credit card or taking out high-interest loans for home renovations, with a 203k refinance, you can get the money for repairs and roll the costs into your mortgage.

PowerSaver Grant – Cash Back for Energy Efficient Improvements

In 2011 the Federal Housing Administration began the new FHA PowerSaver grant.

The program will pay up to 1% of the origination fee or closing costs for borrowers who send at least $3,500 on eligible energy-efficient improvements.

This equals roughly an average of a $2,000 refund on 203k loans. Get more information on the PowerSaver Grant on their website.

First-Time Homebuyers

A first-time homebuyer is defined as a person who has not owned a home within the last three years.

203k loans are great for first-time buyers. However, they are available for all owner-occupied borrowers.

203k loans, like FHA loans, are only for borrowers who intend to occupy the property as their primary residence. First-time homebuyers can qualify, Investors do not.

Credit Score Requirements

Because rehab loans provide borrowers with additional cash over and beyond the purchase price of the home, it’s considered a risky investment. Because of the increased risk, the minimum credit score for a 203k mortgage is 640.

If your FICO score is below 640 and you are having trouble getting approved for a 203k mortgage. You should consider an FHA loan since it is the only mortgage for people with low credit scores.

FHA loans require a low 500 credit score with a 10% down payment. If you have at least a 580 credit rating, you can qualify with just a 3.5% down payment.

Down Payment

Borrowers will need to meet the same requirements as an FHA loan to qualify.

The qualifications for the two types of loans are very similar, besides the higher credit requirement of 620-640. The 203k down payment is just 3.5% of the loan amount.

Mortgage Insurance

The mortgage insurance premium or MIP on a 203k loan is typically 0.85%. The rate will change according to how much the loan is for and your down payment amount.

Below is the updated FHA 203k MIP chart

fha 203k loan mip chart 2017

Closing Costs

203k mortgage closing costs average somewhere between 2%-5% based on the lender and your credit score.

As an example, a $200,000 house will have closing costs somewhere between $2,000-$7,000.

Make sure you get loan quotes from at least three 203k lenders. This way, you can shop for the best mortgage rates and lowest closing costs.

FHA Loan Limits

About 65% of the country is classified as a low-cost area. You can view the list of all low costs areas here.

Low-Cost Area Loan Limits

Loan Type 1 Units 2 3 4
FHA $271,050 $347,000 $419,425 $521,250
HECM $636,150 n/a n/a n/a

High-Cost Area Loan Limits

High-cost areas are cities in which the cost of living is higher than in other areas. This included cities like San Fransisco, Los Angeles, and New York City.

You can view the list of all high costs areas here.

Loan Type 1 Unit 2 3 4
FHA $636,150 $814,500 $984,525 $1,223,475
HECM $636,150 n/a n/a n/a

Alaska, Guam, Hawaii, and the Virgin Islands 

The National Housing Act states that these very high-cost areas can increase the loan limit by up to 150%.

Loan Type 1 Unit 2 3 4
FHA $721,050 $923,050 $1,115,800 $1,386,650

The Final Verdict..

While buying a home that needs renovations can usually mean a good deal.

You should think about the drawbacks of these types of loans.

They will take up much of your time and can often drag on for several months.

If you’re patient and have the extra time to spend overseeing the repairs and dealing with contractors, the 203k renovation loan could be well worth it.

In the end, you will have a home that is livable and suits your needs once you’ve completed the repairs.

Are you thinking about purchasing a home that needs work before you can live in it? If so, talk to a lender about the possibility of getting a 203k rehab loan.

The 203k Lenders in our network will offer loan options that you can compare and choose to make your homeownership dreams come true.

Find more information about the 203k loan program on the HUD website.

Rate Search: Speak to 203k Lenders and Check Rates