FHA 203k Home Loans: Standard and Limited

If you're thinking about buying a home that needs repairs or if you are thinking of upgrading the home you already own, an FHA 203k loan could be the solution you need. There are two types of FHA 203k loans—Standard and Limited—each designed to meet different renovation needs. Let’s break down both options so you can understand which loan is right for your situation.

What Is an FHA 203k Loan?

An FHA 203k loan is a type of mortgage that allows you to finance both the purchase of a home and the cost of renovations in one loan. If you're already a homeowner, this loan can also be used to refinance your mortgage and add funds for renovations. It's a great way to modernize or improve your property without taking out separate loans. Keep in mind that all contract work must be done by a licensed contractor and the borrower cannot participate in any of the installations of improvements.

Standard FHA 203k Loan

The Standard 203k loan, sometimes called a "full" 203k, is ideal for major repairs or extensive home improvements. This loan covers projects that cost over $35,000 and includes structural repairs, room additions, or extensive remodeling. It also allows for work that takes a longer time to complete.

Eligible Repairs for Standard 203k Loan:

  • Structural changes, like adding a new room or repairing foundations

  • Major landscaping or site improvements

  • Upgrading plumbing, electrical, or HVAC systems

  • Replacing flooring, roof, or windows

  • Accessibility improvements for disabled persons

  • Energy efficiency upgrades

Process for a Standard 203k Loan:

  1. Get pre-approved: We will go through the pre-approval process which includes pulling your credit which will be paid by you (approximately $72) and re-imbursed after closing on your home. If your credit score needs some work, I will guide you on how we can increase your score by analyzing your credit report.

  2. Work with a HUD-approved consultant: The consultant will evaluate the needed repairs and help coordinate with the contractor.

  3. Obtain estimates: You'll need to get detailed cost estimates for the work you plan to do.

  4. Loan approval and closing: Once your loan is approved, you'll close on the mortgage, and the renovation funds will be placed in an escrow account.

  5. Renovation phase: Contractors can begin work, and payments will be made from the escrow as repairs and/or updates are completed.

  6. Final inspection: After the work is finished, the property will be inspected to ensure everything was completed according to plan.

Limited FHA 203k Loan

The Limited 203k loan, also called the "Streamline" 203k, is designed for minor, non-structural repairs or upgrades. It's a quicker and simpler option for smaller projects where the total renovation costs do not exceed $35,000. This loan is perfect for buyers or homeowners who want to refresh a home without major structural changes.

Eligible Repairs for Limited 203k Loan:

  • Kitchen or bathroom remodels (non-structural)

  • Roof, gutters, or downspout repairs

  • Replacement of flooring, windows, or doors

  • Painting or simple cosmetic improvements

  • Energy efficiency improvements (such as new insulation or HVAC systems)

  • Appliance upgrades

Process for a Limited 203k Loan:

  1. Get pre-approved: We will go through the pre-approval process which includes pulling your credit which will be paid by you (approximately $72) and re-imbursed after closing on your home. If your credit score needs some work, I will guide you on how we can increase your score by analyzing your credit report.

  2. No consultant required: You don’t need a HUD-approved consultant for this loan, making the process quicker.

  3. Obtain estimates: Get quotes from contractors for the work you plan to complete.

  4. Loan approval and closing: Once your loan is approved, funds for the renovation will be held in an escrow account.

  5. Renovation phase: Contractors can start work, and funds are released upon project completion.

  6. Completion: Once repairs are done, you’ll submit receipts to the lender, and any remaining funds in escrow will be used to pay the contractor.

Benefits of FHA 203k Loans:

  • One loan for purchase and renovation simplifies financing.

  • You can increase your property value by improving your home.

  • Low down payment requirements (as low as 3.5%).

  • Flexible credit requirements make it accessible to more borrowers.

  • Great for first-time homebuyers or those who want to refinance for improvements.

Is a 203k Loan Right for You?

An FHA 203k loan is ideal if you're purchasing a home that needs either minor updating, minor repairs, or significant repairs or if you want to improve your current home. If you're aiming for a small cosmetic update, the Limited 203k is perfect. If you're tackling a larger project that involves structural changes, the Standard 203k might be the better option.

Reach out to me if you have any questions about this loan program

The following is an FHA 203k home renovation loan scenario that is based on a manufactured home sitting on 2 acres originally listed at $160k and had a price reduction of $10k and is now $150k. In this scenario we increase the offer price to $159k and ask $9k in seller concessions to help pay for closing costs. Renovation costs are approximately $75k but contingency reserve (10% of renovation cost) and construction draws ($250 each draw)need to be included so total reno costs approx $84k making the total purchase price $242,500. This loan scenario is based on a credit score of 620 and rates as of 9/13/24.

This loan can be used on single family residences and duplexes as well. This scenario is just an example but the results would be similar and scaled to the appropriate price for purchase and renovations.