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203k Handbook

Real Estate's Best Kept Secret hand book about the FHA 203k Renovation Mortgage Loan Program

The Must-Have FHA 203k Renovation Loan Handbook for Home Buyers and Home Owners. Learn more ...

Take a Closer Look at the FHA 203k
Take a closer look at the details of the FHA 203k Renovation Mortgage Loan Program

For those of you who would like to explore more of the details, below is a collection of some of the more in-depth guidelines and information from HUD regarding the FHA 203k Renovation Loan. For additional detail, we invite you to also explore our FHA 203k FAQ's.

Remember, the fastest and easiest way to learn more about your own ability to qualify and how much home you can afford is to let us connect you with a specially trained 203k Specialist mortgage professional from our national network.

(As someone who pays attention to details, you'll notice below that this information from HUD uses the official "203(k)" which we simplify to "203k" for our purposes in other areas of our website.)

FHA 203k Fundamentals

Single family homes along with duplexes, triplexes and four-plexes that are at least one year old are eligible under the FHA 203(k) program. The home buyer must be an owner occupant; investors do not qualify for the program. Condominiums that have been approved by FHA are also permitted under the program.

The 203(k) program can be used in one of three ways with one-to-four unit dwellings:

  • To purchase the dwelling and the land and then rehabilitate it
  • To purchase the dwelling and move it to another mortgaged property and then rehabilitate it
  • To refinance the borrower’s existing mortgage and then rehabilitate the dwelling

With the purchase of a condominium:

  • Owner occupants and qualified non-profit borrowers only…no investors
  • Rehabilitation is limited to the interior of the borrower’s unit
  • The lesser of either five units or 25 percent of all units in the condominium project can be under rehabilitation at the same time
  • The mortgage under the 203(k) program cannot exceed 100 percent of the after-improved value of the condominium

A FHA 203(k) insured loan can also be used to purchase a mixed-use residential property provided the rehabilitation funds are used solely to improve the residential part of the property. The purchase of HUD-owned properties is permitted as well, with certain restrictions attached. 


FHA 203(k) loans are available in two types:  

  1. The Standard 203(k) (sometimes referred to as the Consultant K or Original K) is intended for more complicated projects that involve structural changes such as room additions, exterior grading and landscaping, or renovation that would prohibit you from occupying the residence. A Standard 203(k) is also used if your project requires engineering or architectural drawings and inspections. Under this program a single family property may be converted into a two-, three- or four-unit dwelling or vice versa so long as the owner occupies one of the units.  
  2. The Streamlined 203(k) is designed for less extensive improvements and for projects that will not exceed a total of $35,000 in renovation and related expenses. This version does not require the use of a consultant, architect, and engineer or as many inspections as the Standard 203(k). As a result, when applicable, the Streamlined 203(k) generally becomes the simpler, less costly option. 

Once the homebuyer finds a property to purchase, the process of obtaining a loan insured under the provisions of the 203(k) program begins in earnest. The mortgage must be the first lien on the property being improved.


The maximum mortgage amount allowable under the 203(k) program is the lesser of:

  1. The as-is value or the purchase price of the property before rehabilitation, whichever is less, plus the estimated cost of rehabilitation, or
  2. 110 percent of the after-improved value of the property

FHA 203k Features and Benefits

       
  • Only a 3.5% down payment is required, which can be gifted by family members
  • More flexible qualification requirements allow buyers with less than perfect credit to purchase a home at competitive rates
  • A single loan for the purchase and improvement of the home means only one loan application and one set of closing costs – saving both time and money
  • Can be used for either a purchase or refinance along with renovation costs
  • 15 and 30 year loans are available
  • Interest rates can be variable or fixed
  • FHA loans are assumable with no prepayment penalties
  • An FHA Energy Efficient Mortgage (EEM) allows the borrower to qualify for a larger mortgage to add improvements that will lower utility expenses
  • Can be used for a variety of improvements from the most simple to very complex
  • Renovation costs are wrapped into the mortgage, allowing the borrower to pay for the improvements over time at a much lower interest rate than conventional alternatives
  • Rather than paying a premium for a home in “perfect” condition, buyers can take advantage of discounted prices available on foreclosures or other homes on the market that are in need of repair or remodeling
  • Instead of paying for a previous owner’s improvements, 203(k) allows the buyer to renovate the home adding the features, colors, styles, etc. that suit their tastes and needs
  • Using the program could allow a buyer to purchase more home for the money in a more desirable location

Qualifying Home Buyers

To qualify as a homebuyer under the FHA 203(k) program requires that the buyer:

  • Is purchasing a property that is eligible for the program
  • Is purchasing a property in need of at least $5,000 in rehabilitation
  • Earns enough income in order to make the monthly mortgage payments
  • Applies through an approved FHA lender 

Qualifying Home Owners   

In addition to the purchase of a home, the FHA 203(k) program is also available to homeowners who want to refinance their principal residence, consolidating all existing loans and have funds available for renovation purposes at the same time.

 

The FHA 203(k) program allows the homeowner to:

  • Refinance existing mortgages and wrap them into one loan that also allocates funds to cover renovation costs
  • To borrow up to 97.75 percent of the after-completed value of the property
  • 30 year fixed or adjustable rate loans available
  • All closing costs can be included into the new loan
  • Qualify with a minimum credit score of 640 (some lenders will allow a score of 620)