203(k) Loan
An FHA 203(k) loan is a government-insured mortgage that combines home purchase or refinance financing with the cost of renovations into a single loan. The program, administered under FHA guidelines, enables borrowers to finance both the acquisition and rehabilitation of a property without requiring a separate construction or personal loan.
What This Means
Two 203(k) Options
The FHA 203(k) program has two tiers. The Standard 203(k) covers major structural repairs, room additions, and renovations exceeding in cost. A HUD-approved 203(k) consultant is required to oversee the project scope, cost estimates, and draw inspections. The Limited 203(k) (formerly called Streamline) covers cosmetic and minor improvements up to with a simpler process and no consultant requirement. Both versions follow standard FHA qualification criteria.
How the Financing Works
The loan amount is based on the projected value of the property after renovations are completed, known as the "as-improved" value. Funds designated for renovation are placed in an escrow account and released to the contractor in draws as work progresses and passes inspection. The borrower makes a single monthly mortgage payment covering the full loan amount. Down payment requirements match standard FHA guidelines: with a credit score of or higher.
Eligible Improvements and Restrictions
Eligible improvements include structural alterations, energy efficiency upgrades, plumbing and electrical work, flooring, roofing, accessibility modifications, and cosmetic updates. The property must be at least one year old and meet FHA minimum property standards upon project completion. Luxury items such as swimming pools and outdoor fireplaces are not eligible. The home must be the borrower's primary residence; investment properties do not qualify for 203(k) financing.