How Do FHA 203k Loans Work? Step-by-step Guide

203k rehab houseYou've found the perfect house. The location is great, and the price is fair, but it does need some upkeep. If you're like most house buyers, you can afford the down payment and closing costs but not the upkeep and repair costs. So, what do you do? The 203k streamline all-in-one loan is the answer.

The 203K Streamline Loan, also known as the FHA 203k home-loan program, is aimed at helping Pennsylvania homebuyers (and homeowners) in purchasing a house while combining rehabilitation (or repair) expenses into a single home-loan.

This FHA program may also be used to include home improvement costs when refinancing a mortgage. Streamline 203k is intended for minor repairs and/or improvements. Plans, consultants, engineers, or architects are not required for the “original” 203k loan.

How much can I borrow? Is there a minimum rehab amount?

There is no minimum repair amount for an FHA home renovation loan; however, the maximum repair and or rehabilitation cost with the streamline 203k program is $35,000.

A 203k loan's maximum loan amount is restricted to the lesser of the borrower's approval limit, the FHA maximum mortgage limit for the region, or 110 percent of the improved assessed value.

The maximum loan amount is determined by the FHA lending limit for the United States county in which the house is located, as well as the number of housing units.

Can the 203k program be used to finance repairs and upgrades to HUD homes?

Yes! If the HUD home is classified as "insurable," with a repair escrow of $5,000 or less in needed repairs, or "uninsurable," with more than $5,000 but no more than $35,000 in necessary repairs, a repair escrow of $5,000 or less is required.
As long as the repairs are covered under the 203 streamlining program.

Who's eligible for a 203k loan?

Owner Occupants – Investors are not permitted with the 203k loan.

203k loan term options

Fixed-rate mortgages for 30 or 15 years, as well as one-year adjustable-rate mortgages

What kinds of homes qualify for an FHA home renovation loan?

  • single-family homes
  • FHA approved condominium units
  • Townhouses
  • Mixed use (i.e. storefront)
  • One to four-unit residential buildings
  • The 203k streamlining program may be utilized to convert a single-family home to a two-, three-, or four-family structure. Existing multi-family structures may be reduced to one to four family units.

What upgrades are qualified for FHA Streamlined(K) financing?

The following improvements and/or repairs are permitted under the Streamlined (k) program:

  • advances in accessibility for people with impairments
  • Basement finishing and renovation that is not structural in nature
  • Dishwashers and microwave ovens are examples of appliances.
  • flooring
  • HVAC (Heating, Ventilation, and Air
  • lead-based paint stabilization or removal
  • Minor renovation, such as kitchens, that does not need structural changes
  • outside and interior painting
  • outside decks, patios, and porches
  • paint containing lead
  • purchase and installation of equipment, including free-standing refrigerators
  • repair or replacement of a septic system and/or a well
  • replacement windows and doors, as well as external wall re-siding
  • shingles, gutters, and downspouts
  • stoves, freezers, washers and dryers, and so forth
  • systems of plumbing and electricity
  • waterproofing in the basement
  • Weather stripping, for example.
  • Weatherization includes storm windows and doors, as well as insulation.

Ineligible repairs and rehabilitation costs

The following repairs and rehabilitation costs are ineligible for the 203k streamline program, but are better suited for the traditional 203 home-loan program.

  • Any repair or improvement that will take more than six (6) months to accomplish;
  • Landscaping or other site amenity enhancements;
  • Significant repair or remodeling, such as moving a load-bearing wall;
  • New building (including room expansions);
  • structural damage repair;
  • Repairs that require detailed blueprints or architectural displays;

    Activities that require more than two (2) payments to a specialized contractor.

The mortgage lender will evaluate the planned repair or rehabilitation plan and cost estimates for the buyer's house to ensure that the expected work meets the FHA 203K underwriting requirements.

 FHA 203(K) Loan Frequently Asked Questions

Q. Are 203k loans still available?
A. Purchase and refinancing FHA 203(k) loans are available.

Q. Can a first-time home buyer qualify for a 203k loan?
A. First-time home purchasers are eligible for the 203(K0 program, as long as they satisfy the standard FHA criteria.

Q. Can I get a 203k loan to purchase appliances?
A. The 203(K) program covers appliances.

Q. Is it possible to make the repairs yourself with a 203k loan?
A. Maybe. The FHA allows the borrower(s) to carry out the necessary repairs/renovations, but the borrower must be qualified and licensed to do so.
Repairs must be completed within six months of the loan closing. The borrower(s) must provide a letter proving their ability to perform the task.
Borrower(s) will not be reimbursed for labor costs spent when doing their own work as part of a Rehabilitation Self-Help Agreement. Only the material costs will be reimbursed.

Borrowers must not be compensated for labor costs while working on their own under a Rehabilitation Self-Help Agreement. Only the material costs will be reimbursed. Borrowers must not be compensated for labor costs while working on their own under a Rehabilitation Self-Help Agreement. Only the material costs will be reimbursed.

Q. Can a 203k loan be used to construct a garage?
A. Garages qualify for the "full" 203(K) program.

Q. Do 203k loans have PMI?
A. The FHA 203(K) loans include PMI, often known as MIP, or mortgage insurance premium.

Q. Where do I find FHA 203k lenders?
203k FHA loan lenders

Q. Who picks the 203k contractor?
A. You do! The contractor(s) who will give estimates for work to be done are chosen by the house buyer (or homeowner in the event of a refinancing).
The contractor or contractors must be licensed (if needed by the state or municipality) and have enough insurance coverage.  203k Consultant Lookup

Read more about FHA 203k mortgages at