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Key takeaways
- FHA 203(k) loans provide funding to finance both a home’s purchase and the cost of repairing it.
- This type of loan, which you can obtain from an FHA-approved lender, is reserved for borrowers who intend to live in the home, not house-flippers or investors.
- There are two types of 203(k) rehab loans: limited, for repairs less than $75,000, and standard, for more expensive projects.
What is an FHA 203(k) loan?
If you want to buy or refinance a home that needs renovations, the FHA 203(k) rehab loan may be a good option. Also known as a Section 203(k) loan, this type of financing lets you roll both your mortgage and remodeling costs into a single loan. Like other FHA loans, a 203(K) loan is insured by the Federal Housing Administration and offered by FHA-approved mortgage lenders.
In some cases, you can also finance up to six months of mortgage payments if you need to live elsewhere during renovations. Borrowers also pay FHA mortgage insurance.
There are two types of FHA 203(k) loans: limited 203(k) and the more popular standard 203(k). Here’s an overview:
Types of FHA 203(k) loans
| Type of loan | Designed for | Minimum cost requirement | Maximum loan amount |
| Limited or streamline 203(k) loan | Minor improvements and non-structural projects (like painting or installing new flooring) | None | $75,000 |
| Standard 203(k) loan | More extensive jobs, including major structural work (like building an addition) | $5,000 | Depends on the county’s FHA loan limits |
How does an FHA 203(k) loan work?
A 203(k) renovation loan can be a 15- or 30-year fixed- or adjustable-rate mortgage. The amount you can borrow depends on criteria such as your credit rating and income. The total amount borrowed through 203(k) loans must be within FHA loan limits for the area in which the home is located. For 2026, the FHA limit for low-cost areas is $541,287 for single-family homes; those living in high-cost areas may borrow up to $1,249,125.
Generally, the most you can borrow for the loan is the lowest of the following:
- The FHA’s maximum loan limit for the county where the property is located
- The home’s pre-renovation value plus improvement costs
- The home’s after-renovation value
What can an FHA 203(k) loan be used for?
A standard 203(k) loan can cover many major projects, including:
- Converting a property from one unit to up to four units, or the reverse
- Foundation repairs
- Adding or repairing a deck, patio or porch
- Adding or remodeling a garage
- Adding a fence
- Adding accessibility features for people living with disabilities
- Installing appliances such as a new refrigerator, cooktop or oven
- Remediating health and safety hazards, such as lead paint
- Plumbing, HVAC or electrical upgrades or replacement
This type of loan can’t cover luxury improvements such as adding a gazebo, swimming pool or tennis court. You also can’t use it for repairs to co-ops or mixed-use properties, unless that property is primarily residential.
A limited 203(k) loan, in contrast, can cover projects like:
- Renovating a kitchen
- Painting interiors
- Replacing old carpeting
- Preparing a home for sale
FHA 203(k) loan requirements
There are many requirements to qualify for an FHA renovation loan, including:
- Occupation: FHA 203(k) loans are for owner-occupants and may not be used by investors who are flipping the home. In some situations, however, nonprofit organizations may be able to access these loans.
- Credit score and down payment: You’ll need a minimum credit score of 580 with a 3.5% down payment, or a minimum score of 500 with a 10% down payment. Your lender, however, may require higher scores, making it useful to compare lenders to find the one that best fits your needs.
- Debt-to-income (DTI) ratio: Your debt-to-income (DTI) ratio, which measures your gross monthly income against your monthly debt payments, can’t exceed 43%.
- Renovation rules: You can only use a limited 203(k) loan for non-structural renovations costing up to $75,000. For a standard 203(k) loan, the work has to involve major construction and cost at least $5,000.
- Timeline: For a standard 203(k) loan, the work must be completed within 12 months of closing. For a limited 203(k) loan, the work must be completed within nine months of closing.
FHA 203(k) loan pros and cons
An FHA 203(k) loan allows you to purchase a home that needs some work without obtaining two loans. However, there are many rules for qualifying for this type of mortgage.
Pros of an FHA 203(k) loan
- One loan for both the home purchase and renovations
- Lower credit score requirement
- Low minimum down payment requirement
- Lower interest rates compared to credit cards or home improvement loans
- Can finance up to six months of mortgage payments if living elsewhere during renovations
Cons of an FHA 203(k) loan
- Must plan to live in the home during or after renovation, for at least one year
- FHA mortgage insurance payments required
- Rates might be higher compared to buy-and-renovate conventional loans
- Work financed by a limited 203(k) loan must be completed within nine months
- Not all lenders offer 203(k) loans, and some may require higher credit scores than FHA minimums
- Process may involve more paperwork and contractor coordination than a standard mortgage
FHA 203(k) loan vs. construction loan
An FHA 203(k) loan funds the purchase of a home and qualifying renovations, while a short-term construction loan is used to build a home. Once the project is complete, you can convert the construction loan to a regular mortgage. Depending on your credit and finances, a 203(k) loan might be easier to qualify for, but a construction loan has fewer restrictions around the types of improvements you can finance.
Are FHA 203(k) loans a good idea?
An FHA 203(k) loan can be useful if you want to fix up a new home to live in, but you’re struggling to get approved for conventional funding. As government-backed loans, FHA 203(k) loans are typically easier to qualify for than conventional mortgages.
“If the house you are looking at buying needs significant work, and you intend to live in the home, not flip it or use it as an investment, then this could be a good loan option for you,” says Aaron Craig, former vice president of Mortgage Sales for Georgia’s Own Credit Union.
However, since FHA 203(k) loans require extra work and oversight, they aren’t the right choice for everyone. For some people, it can be challenging to estimate renovation costs and project timelines, and to ensure they align with the FHA’s requirements.
I would only recommend FHA 203(k) loans to those who know the construction industry and are not first-time buyers, as it’s a complex loan and takes a lot of coordination.
— Kevin Watson, district manager for Churchill Mortgage
“You hear stories about some unscrupulous lenders out there making these sound easy, but I think that does a disservice to the borrower, as they are complicated and should be approached with caution,” Watson says.
How to get an FHA 203(k) loan
Once you’ve identified a home to buy and fix up, you can apply for a 203(k) loan with your lender and start working on your home projects. The process involves the following steps:
- Assign a consultant, if needed. If you’re obtaining the standard version of the loan, your lender will assign a 203(k) consultant to your project. If you’re getting the limited 203(k), you’re not required to work with a consultant.
- Work with a contractor. Once your lender signs off on the consultant’s details and closes the loan, you’ll work with a licensed contractor to handle renovations.
- Have the work completed. Your lender will issue payments to you at various phases of the renovation. As the project progresses, the consultant will inspect the work to authorize more payments.
- Wrap up the project. Once the project is finished, you’ll provide a release letter and the consultant will evaluate the work.
FHA 203(k) loan refinancing
Although many borrowers associate FHA 203(k) loans with home purchases, the program can also be used to refinance an existing mortgage while providing funds for needed repairs. In this case, the new loan pays off the current mortgage. The remaining funds are placed in a mortgage escrow account, to be used for renovations.
If you already have an FHA 203(k) loan, you may be able to refinance it with a FHA streamline loan. This option doesn’t provide money for repairs, but could help you earn a lower interest rate and reduced monthly costs.
Frequently asked questions
Additional reporting by Taylor Freitas
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