If you’re struggling to find an affordable, move-in-ready home due to high competition in the market, consider looking for a fixer-upper in your preferred location. You can finance the purchase and renovations with an FHA 203(k) loan. This can be a great solution to avoid bidding wars that increase prices beyond your budget.

What is an FHA 203(k) loan? 

The FHA 203(k) loan is a type of government-insured mortgage that allows you to combine the purchase price of a house and the cost of necessary renovations into one loan. This loan can also be used by current homeowners who want to refinance.

“It’s the perfect loan for the ugly house that won’t sell,” says mortgage broker Kris Radermacher of Klear2Klose Team powered by Lincoln Lending Group. “It allows a buyer to go in and negotiate on a home at a lower price and get it to a higher value.”

FHA 203(k) mortgages are supported by the Federal Housing Administration. The eligibility requirements are comparable to regular FHA loans, which are usually easier to obtain than conventional mortgages.

For buyers in competitive markets with a shortage of affordable homes, an FHA 203(k) might be a good option. It enables buyers to purchase a fixer-upper, even if others might pass it by because of the additional work involved.

You can refinance your home with an FHA 203(k) loan which allows you to include the costs of renovations such as kitchen remodeling, new bathrooms, or flooring in your mortgage.

How does an FHA 203(k) loan work? 

FHA 203(k) mortgages come in two types with varying borrowing limits and acceptable renovations. Remember that these mortgages are only meant for primary residences and cannot be used for investment properties.

With FHA 203(k) loans, you have the option to choose between a fixed or adjustable rate. These loans allow for down payments as low as 3.5%. They can be used to finance single-family homes, one-to-four-unit properties, and condos and townhomes in certain conditions.

You can secure funds for up to six months of mortgage payments if you will not be residing in the house during construction.

Types of FHA 203(k) loans

There are two kinds of FHA 203(k) loans that follow different rules and guidelines regarding the amount of money you can borrow and how it can be used. Your choice between them depends on the repairs required.

  • Limited: These apply to smaller projects with fewer requirements. They provide as much as $35,000 for renovations, with no major structural repairs.
  • Standard: These are used for major structural repairs. Renovation costs must be at least $5,000. An approved FHA 203(k) consultant is required to supervise the project.

FHA 203(k) loan requirements

The eligibility requirements for an FHA 203(k) loan are very similar to those for a regular FHA loan.

  1. Credit score: A minimum credit score of 500 is required.
  2. Down payment: A minimum down payment of 3.5% is required if your credit score is 580 or higher. The down payment is 10% for scores between 500-579.
  3. Debt-to-income ratio: Your debt-to-income ratio (including your proposed monthly housing payments) should not exceed 43% of your income.
  4. Property type: Eligible property types are single-family homes, one-to-four-unit properties, and individual-owned condo or townhome units for interior repairs only.
  5. Occupancy: The owner must reside in the home.
  6. Homebuyers: Loans are available to all borrowers, including first-time homebuyers and existing homeowners who want to refinance.
  7. Income: There are no income limits.

What kind of renovations does an FHA 203(k) loan cover?

The FHA 203(k) loan can be used for different types of projects, and some popular ones include:

  • Roofing
  • Flooring
  • Plumbing
  • Bathroom or kitchen remodeling
  • Health and safety hazards
  • Landscaping
  • Energy-efficient upgrades
  • Enhancing accessibility

Benefits Of An FHA 203(k) Loan

An FHA 203(k) mortgage loan can allow someone with a lower credit score or less cash for a down payment to get into a home in an area they might not otherwise be able to afford.


  • Combines home purchase and renovations into one loan
  • Low down payment
  • Low credit score requirement
  • Competitive interest rates
  • Covers mortgage payments if the home cannot be lived in during renovations

How to buy a home with an FHA 203(k) loan

Here is a simple step-by-step process that you can follow when buying a home with an FHA 203(k) loan:

Step 1: Get pre-approved by an FHA 203(k) lender

To begin the process of receiving a loan through the FHA 203(k) program, search for an authorized lender and get pre-approved. Check the US Department of Housing and Urban Development’s search page to see if the lender has issued a 203(k) loan within the last 12 months.

Step 2: Find your home

To find a home that needs renovation, you can search local online real estate listings for properties that are priced lower than their market value. Another way is to use keywords such as “fixer-upper” or “handyman special” which are commonly used by real estate agents for such properties. Additionally, you can seek the help of a local buyer’s agent to assist you.

If you plan to use a 203(k) loan to buy a home that requires repairs, be sure to inform the seller.

Step 3: Select your contractor and get bids

If you purchase a property that requires structural repairs, you must work with an FHA-approved 203(k) consultant. These consultants may be licensed contractors or home inspectors. To find an approved 203(k) consultant or licensed contractor, you can search the HUD website. Alternatively, you may ask a licensed mortgage lender, who may be able to recommend a 203(k) consultant.

The 203(k) consultant will assist you in creating remodeling plans and will have knowledge of the requirements.

Step 4: Get an offer from a contractor in writing

After accepting a bid from a contractor, ensure to obtain a comprehensive written offer that lists all renovation expenses, comprising both labor and materials. Additionally, the offer should contain a defined timetable for completing the work.

Step 5: Submit all the information to the underwriter

The underwriter and appraiser will collaborate to establish the post-renovation value, which ultimately decides the loan amount.

Step 6: Close the loan

Once all the necessary documents are completed, the loan will be finalized and the seller will receive the purchase amount. The remaining funds designated for home renovation will be placed into an escrow account and disbursed according to the terms of the contract.

Step 7: Move into your new home

After closing the loan, you have 30 days to start renovating, which must be finished within six months. If the renovation isn’t wide-ranging, you can move in while the work is ongoing. If it’s not possible to live there during the home improvements, you can fund up to six months of mortgage payments before moving in.

Contact Sword Mortgage To Learn More About Your Options

Call (770) 757-5750 or complete our online form to speak with a loan expert at Sword Mortgage to get help navigating your options and find a loan that fits your needs today.