How It Works
The FHA 203(k) loan combines your home purchase (or refinance) and renovation costs into a single mortgage. Instead of taking out a mortgage and then a separate construction loan, the 203(k) program streamlines the process into one loan with one closing, one set of fees, and one monthly payment.
There are two types: the Standard 203(k) for major renovations exceeding $35,000 (including structural work) and the Limited 203(k) for smaller projects up to $35,000 that do not involve structural changes. The Standard version requires a HUD consultant to oversee the renovation process, while the Limited version has a simpler process.
Renovation funds are held in an escrow account and disbursed to contractors as work is completed and inspected. This protects both the borrower and the lender. The total loan amount is based on the projected value of the home after improvements are completed, which can make it possible to buy a fixer-upper that might otherwise not meet standard mortgage appraisal requirements.
Who Is This For?
- Buyers interested in fixer-upper or distressed properties
- Homeowners who want to renovate and refinance in one loan
- First-time buyers looking for affordable properties that need updates
- Investors in primary residences that need significant renovation
- Buyers in competitive markets who are willing to consider homes needing work