What is an FHA 203k Loan?
An FHA 203k loan permits home buyers to finance repair/improvement money into their
mortgage to repair, improve or upgrade their home. With this loan option, home buyers
can quickly and easily tap into cash to pay for property repairs or improvements, such
as those identified by a home inspector or FHA appraiser or home buyer preferences,
such as energy efficient improvements, replacement of existing counter tops,
appliances, floor coverings, etc. There are two types of FHA 203k Loans:
Standard/Rehab (minimum $5,000 up to FHA maximum loan amount) & the Streamline
($0 – $35,000…up to FHA maximum loan amount). The FHA 203k Rehab loan is more
like a construction project, and the FHA Streamline 203k Loan is for more minor
An over-simplified example: Purchase price is $100,000.
Upgrades/Repairs/Improvements will cost $15,000. Borrowers loan amount is $115,000
(not to exceed FHA maximum loan amount).
What are the benefits of using an FHA 203k Loan?
The purchase of a house that needs repair is often a catch-22 situation, because the
bank won’t lend the money to buy the house until the repairs are complete, and the
repairs can’t be done until the house has been purchased. HUD’s FHA 203k loan
program can help you with this quagmire and allow you to purchase or refinance a
property plus include in the loan, the cost of making the repairs and improvements. Plus
the mortgage loan interest on the FHA 203k loan qualifies for the mortgage interest tax
deductions like all other mortgage loans. So, the interest that the borrower pays on this
“construction” can be all tax deductible! The FHA 203k loan program improves the real
estate market because it requires a property to actually be improved….not just
purchased. Because of the improvement requirement with the FHA 203k loan program,
real estate values are increased, which helps other homeowners in the same
neighborhood, invigorates communities, creates work for contractors and commerce is
conducted by the purchasing of goods and and services. Simply put, the FHA 203k loan
program improves everything associated with it.
What types of repairs and/or modifications are acceptable for an FHA 203k Loan?
Any repairs/improvements/modifications/modernizations that add value to and/or
improve the property are acceptable for an FHA 203k Loan. The improvements must
comply with HUD’s Minimum Property Standards (24 CFR 200.926d and/or HUD
Handbook 4905.1) and all local codes and ordinances. Structural modifications and any
work in excess of $35,000 are NOT allowed for the FHA 203k Streamlined Loan, but the
FHA 203k Rehab does allow for structural modifications, landscaping and for work in
excess of $35,000. Luxury items such as swimming pools, BBQ’s, Gazebos, spas, etc.
are not allowed for any 203k loan. However, limited pool repair (max $1500-subject to
lender approval) is allowed under both versions of the FHA 203k loan.
Examples of allowable repairs/modifications/renovations for the FHA 203k loan (not an
§ Energy Efficient upgrades (windows, insulation, solar systems, etc.)
§ Repair/Replacement of roofs, gutters and downspouts
§ Repair/Replacement/upgrade of existing HVAC systems
§ Repair/Replacement/upgrade of plumbing and electrical systems
§ Repair/Replacement of flooring
§ Kitchen remodeling
§ Painting, both exterior and interior
§ Weatherization, including storm windows and doors, insulation, weather stripping,
§ Purchase and installation of appliances, including free-standing ranges, refrigerators,
washers/dryers, dishwashers and microwave ovens
§ Accessibility improvements for persons with disabilities
§ Lead-based paint stabilization or abatement of lead-based paint hazards
§ Repair/replace/add exterior decks, patios, porches
§ Basement finishing and remodeling
§ Basement waterproofing
§ Window and door replacements and exterior wall re-siding
§ Septic system and/or well repair or replacement
§ Stuctural repairs/modifications (moving walls, repairing foundations, etc.)