Financial Education

FHA 203k loan: what it is and how it can help you

If you are looking to buy a home, the chances are good that at some point in your search, an FHA 203k loan has been mentioned. But do you know what it is? And whether or not this type of mortgage might work.


How FHA 203k loans help you buy and renovate a home

Real estate agent or realtor meeting with her client, giving hou
Find out what is an FHA 203k loan. Source: Adobe Stock

Are you interested in purchasing a home but concerned about the cost of renovations? Then an FHA 203K loan may be just what you need.

House model with real estate agent and customer discussing for c

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But before applying, you need to understand what it is fully. Keep reading to learn more about how this loan could help you achieve your homeownership goal. Let’s get started.

What is an FHA 203k loan and how does it work?

An FHA 203k is a type of loan insured by the Federal Housing Administration (FHA). It offers unique features.

Therefore, it lets you purchase or refinance a home that needs repairs or renovations.

As a result, it lets the borrowers take a loan and use it for two purposes: purchasing the property itself and covering any repairs and modernizations it might need.

The FHA 203k loan was designed to help lower-income families buy properties that require extensive repairs and use them as primary homes.

Borrowers can apply for an FHA 203k loan under a fixed or adjustable rate.

Additionally, borrowers must live in the house as their primary residence for at least 12 months before renting or selling it.

Besides the property purchase, this type of loan can cover multiple repairs, including plumbing, flooring, heating, kitchen remodeling, and more. However, it has its limitations.

The loan does not cover renovations that might be considered extravagant, such as a tennis court repair.

This home loan can be a good option for borrowers with a limited budget and first-time homebuyers who prefer to buy an older home and repair it instead of buying an expensive one.

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The benefits and drawbacks of a 203k loan

If you intend to buy a home that needs some repairs or want to cover the costs of a home you own, then an FHA 203k loan might be needed.

But before applying for this product, you must consider its advantages and disadvantages. This way, you can make a more informed decision and avoid financial damage.

To help you with that, we’ve compiled the pros and cons of a 203k loan below. Check it out.


  • This mortgage allows you to purchase or refinance and renovate a property with one loan;
  • It has lower credit score requirements;
  • It allows borrowers to put down less money;
  • 203k loans offer lower interest rates compared to credit cards and personal loans.


  • Borrowers must pay for FHA mortgage insurance;
  • The FHA 203k loan cannot be used for investment properties;
  • The FHA loan limits will restrict the loan amount.

What are the different types of FHA 203k loans?

Couple doing a home makeover
Learn the different types of FHA 203k loans. Source: Adobe Stock

Two FHA 203k loan types are available on the market: the limited 203k and the standard 203k.

The Limited 203k loan is destined for minor improvements or repairs, which can be completed within six months. Therefore, it provides up to $35,000 for renovations.

However, borrowers can not use it for major structural repairs. As a result, borrowers cannot add new rooms or landscaping, for example.

Also, the home must be livable through the repairs period.

Furthermore, a limited 203k loan might allow the borrowers to do part of the home improvement. However, a licensed constructor must be involved in it.

On the other hand, we have the Standard 203k loan. For this type of loan, the repairs must cost at least $5,000, and it is destined for major structural improvements.

This loan requires an approved consultant to oversee the licensed contractor’s progress. With a 203k loan, borrowers can add rooms, for example. However, luxury improvements are prohibited.

How much money can you borrow with a 203k loan?

FHA 203k loans have borrowing limits. For instance, borrowers can finance 110% of the home’s proposed future value.

Or, they can borrow the home value plus the repairs and renovation costs, whichever costs less.

However, before applying for an FHA 203k loan, check the FHA loan limits in your region. Usually, the home value is around $420,480 in low-cost areas and $970,800 in high-cost areas.

As said, the two types of FHA 203k loans have different limits for the improvement costs. Limited 203k loans allow borrowers to borrow up to $35,000 for improvements.

While the Standart 203k loan allows borrowers to have a minimum improvement cost of $5,000.

What kind of renovations are allowed with an FHA 203k loan?

As noted, 203k loans can be used to finance both purchase and home renovations. However, there are some limits regarding the types of improvements allowed.

Limited FHA 203k loans are destined for smaller repairs, including installing a new roof, painting, remodeling the kitchen, repairing a well or septic system, and replacing the carpet.

On the other hand, a standard 203k loan will be used for bigger home improvement projects.

Therefore, it includes changing the property’s structure and modernizing and improving functionality.

Also, borrowers can upgrade the home appearance, add or replace floors, make major landscaping work, make energy conservation improvements, and more.

As a result, a lot can be done with a 203k loan. So remember to take a closer look at the limits before applying.

What are the requirements to apply?

Happy young couple paying bills online in computer app
Apply for an FHA 203k loan today! Source: Adobe Stock

FHA 203k loans have some specific borrowing requirements that new applicants must meet. However, these requirements might be less strict compared to other loan types.

As a result, borrowers must have a minimum credit score of 500. Also, they’ll have to make a down payment of at least 10% of the property price.

However, if you have a credit score of 580, you can put down as little as 3.5% of the home value. Also, the property value must be below the FHA loan limits.

How to apply for an FHA 203k loan?

Applying for an FHA 203k loan is simple. First, you’ll need to find an FHA-approved lender and complete their application process.

Usually, they require new applicants to fill out an application form with their personal information. Also, they need to provide information regarding the home loan they want to apply for.

FHA 203k loans have lower closing costs than conventional mortgages. However, some additional fees might be attached to this type of loan.

And always remember, before making your decision, make sure to shop around and find a lender that best fits your needs.

Are you ready to start your homebuying journey? We hope so! But don’t worry. With a bit of research, you’ll be prepared to get started!

We have another great article to help you with that. Keep reading and learn key things to do before applying for a mortgage! Let’s go!

Home purchase. Mini paper house figurine in supermarket troley on blue background.

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About the author  /  Beatriz Vieira

Beatriz Vieira is a producer and copywriter who is part of the finance writer team in this portal. She has a degree in Journalism and aims to improve her bilingual writing skills. Her subjects of most significant interest are culture, finances, and self-development.

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