FHA 203K Loans: Government-Backed Renovation Financing
Borrowers who need to make updates to a home can use the FHA 203K program to combine renovation expenses with the cost of purchase or refinance. Learn about this program below.
What Is an FHA 203K Loan?
Two programs to choose from
The Standard FHA 203K loan is best for large projects, like structural changes, plumbing, and electrical systems. The Limited FHA 203K loan is ideal for smaller projects and requires less documentation.
Attractive eligibility requirements
FHA loans tend to have more lenient credit and down payment requirements compared to conventional mortgages.
High Loan-to-Values
These programs also offer high LTVs, which allows borrowers to finance a larger percentage of the home's value.
What Can an FHA 203K Loan Be Used For
Major structural repairsÂ
An FHA 203(k) loan can be used for extensive structural repairs, including fixing foundations, replacing roofs, and making other large-scale changes to the home’s framework.
HVAC and energy-efficiency improvementsÂ
This program can also be used to upgrade a home's heating, ventilation, and air conditioning (HVAC) system, or to make energy-efficient changes like adding insulation, installing double-pane windows, and installing solar panels.Â
Some cosmetic repairs
Some cosmetic updates may also be covered, like those that improve the home's livability. This might include things like new flooring, painting walls, or installing new lighting fixtures.
Pros
- Flexible credit score and debt-to-income requirements
- Higher loan limits than regular FHA loans in some areas
- Funds are disbursed in stages according to project milestones
- May cover some luxury improvements
- Can significantly increase home value
Cons
- Renovations must be completed by a licensed contractor
- Requires Mortgage Insurance (MI)
- Not all cosmetic upgrades are eligible
Talk to our mortgage experts today about finding the right loan for you.
Alternatives FHA 203K Loan
- Purchase or refinance and renovate with the same loan
- Includes structural repairs, remodels, and luxury renovations
- Larger loan amounts available
- Can be used for primary residences, second homes, or investment propertiesÂ
- Available to eligible Veterans and spouses
- No down payment or private mortgage insurance (PMI) needed
- Covers structural repairs, upgrades, and some luxury improvements
- Can only be used for primary residences  Â
- Borrow against the value of your home to pay for renovations
- Provides a line of credit you can repay and borrow from again
- During the draw period, you may only need to pay interest on what you borrow
- You must have accumulated enough equity in your property to qualifyÂ
How Do I Know If an FHA 203K Loan Is Right for Me?
You have less cash on hand for a down payment
If you can't afford a down payment, the FHA 203K loan may be an ideal fit, since it requires you to put less down than a conventional mortgage program.
You need structural or livability renovations
The FHA 203K loan is best for structural repairs and smaller updates like kitchens and bathrooms. However, another program may be ideal for borrowers who wish to make luxury upgrades or cosmetic changes.
You're upgrading your primary living space
This program is generally only available for properties that are or will become the borrower's primary living space.
When Is the Best Time to Take Out an FHA 203K Loan?
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FAQ
Can I use an FHA 203K loan to renovate a home that’s uninhabitable?
Yes, the FHA 203K loan can be used to purchase properties that are uninhabitable or have severe damage, including homes that have been gutted or need major structural repairs. That said, the property must meet the FHA’s Minimum Property Requirements (MPR) once the renovation work is completed.
Can I renovate a multi-family property with this program?
You can use an FHA 203K loan to buy or refinance a multi-family property that needs renovation, as long as there are no more than four units and the borrower intends to live in one of the units as their primary living space. Additionally, the cost of renovations must be proportionate to the property’s size.
Can I do some or all of the remodel work myself?
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