Mortgage 101
October 19, 2023

FHA 203(k) Loans: Finance Your Home Renovation Project

Estimated reading time: 3 minutes

Picture this: when house hunting, you may find a home that you love, but it needs a lot of work. Maybe the kitchen has old appliances, or the foundation is getting old. Maybe you’re already in the home you love, but you want to convert an extra room into a bedroom.

The Federal Housing Association (FHA) has two loans through their 203(k) Renovation programs, both of which allow homeowners to borrow both the funds necessary to pay for a property and its repairs.

What Type of Renovations Can Be Used Through FHA?

The FHA offers two distinct types of renovation loans, designed to cater to borrower’s specific home rehab needs. Limited, sometimes known as streamline, is used for minor remodeling projects and non-structural repairs. The Standard type is for larger or “full” jobs.

Limited 203(k)

A more simplified version of the 203(k) mortgage, the Limited 203(k) mortgage is designed for non-structural renovations, small remodeling projects, cosmetic changes, or updates for less than $35,000.

Some updates that may be made with a Limited 203(k) mortgage:

  • Kitchen or bathroom remodels
  • Appliance replacement
  • HVAC upgrades or replacements
  • Carpet and flooring
  • Roofing replacement, including gutters and downspouts
  • Painting
  • Repairing safety or health issues
  • Energy-efficient home improvements
  • Septic system improvements
Standard 203(k)

Where a Limited 203(k) is for smaller projects, fuller projects can be completed with a Standard 203(k) mortgage. Renovations, which can include structural repairs and functional improvements, must exceed $35,000. Luxury upgrades are not eligible.

Some updates that may be made with a Standard 203(k) mortgage:

  • Everything from the Limited 203(k)
  • Structural alterations
  • Converting a single-family home into a 2-, 3-, or 4-unit home, or vice versa
  • Water connections
  • Improving accessibility features
  • Moving the home to a different site

What are the Benefits of 203(k) Renovation Loans?

A person standing on a ladder as they work in a construction home.
One Convenient Payment

Without an FHA Renovation loan, a borrower would have to juggle making monthly payments to their mortgage loan while separately paying for repairs and upgrades. Instead, FHA 203(k) Renovation programs combine both your mortgage payments and renovation costs into one convenient payment.

Low Money Down

With a low down payment, you can save your funds for what matters most: your home renovations! 203(k) Renovation loan down payments start at just 3.5% for qualifying borrowers.

Flexible Credit Qualifications

FHA loans are regulated and insured by the government, meaning a mortgage lender takes on less risk by issuing the loan to a borrower. Borrowers with lower credit scores may be able to qualify for an FHA loan over a conventional program.

Payments That Work for You

Sometimes, a home can’t be occupied during construction for safety reasons. Imagine not living in your home and still having to make payments, all while living somewhere else temporarily! With an FHA 203(k), this stress can melt away. If the property is unable to be occupied during construction, you may be able to finance the first six months of your mortgage payments into your loan.

Right on Time

Unlike other renovation loan programs, homeowners can begin their renovations right after closing. This ensures you’re in your completed home faster than you would be if repairing with a personal loan.

Your Home, Your Way

A family goofing around and giggling as they eat together.

Regardless of your renovation needs, we can help you reach your goals! Our experienced Licensed Loan Originators have the loan programs and industry knowledge to support your financial ambitions and get you to the closing table. When you’re ready to get started, contact us today!

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