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FHA 203k Basics

Overview of FHA 203k Loans


Home improvement
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The FHA 203k loan allows you to borrow money for home improvement and home ownership in one loan. The loan is guaranteed by the FHA, which can help keep your interest rate low. Learn about the pros and cons of FHA 203k loans and see if they’re right for you.

FHA 203k Basics

If you want to buy or refinance a home that needs work, FHA 203k may help. Sometimes called ‘rehab’ or ‘fixer’ loans, FHA 203k provides funding for the home purchase as well as any improvement projects. Instead of getting two loans, you bundle everything together.

Advantages and Disadvantages

There are a few reasons to look at FHA 203k. The loan may reduce costs and paperwork because you only get one loan (as opposed to a home loan and a home improvement loan). Rates are competitive, and you can buy a home that banks might otherwise not provide funding for.

However, there are always tradeoffs. An FHA 203k loan takes longer to close, which may not be acceptable to home sellers (or you). There are a few more hoops to jump through due to the improvement projects, and you may be required to fix things you didn’t intend to fix to get FHA 203k approval.

As with any loan, there are costs and restrictions, and FHA 203k has its own unique set. You should expect closing to take 45 to 90 days.

How FHA 203k Works

The loan can pay for a home as well as eligible improvements. FHA 203k is designed for one to four unit properties, but condo and townhome owners can use the program for interior projects.

The maximum loan depends on location, and FHA 203k allows up to 110% of the home’s projected value after improvement. The minimum loan is $5,000. However, the Streamlined FHA 203k allows you to do smaller projects (with an easier process). Funds for improvement projects go to an escrow account and are paid out as work is completed.

Work must be finished within 6 months of closing. There is a little extra 'padding' in case projects cost more than expected, but you cannot borrow more through FHA 203k after you’ve used the excess. Work with a reputable contractor who provides accurate estimates.

Loans may be fixed rate or adjustable rate mortgages with 15 or 30 year terms, and rates are slightly higher than traditional FHA loans. FHA 203k is not available to investors, but owner/occupants and nonprofits can use them.

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