Renovation Mortgage 203(k)

Renovation Mortgage 203(k) Topics Covered

What is a 203(k) Renovation Mortgage?

With an FHA 203(k) loan, you can purchase or refinance a home that needs repairs and include the renovation costs in a single mortgage. Since these loans are backed by the Federal Housing Administration, they often come with more flexible qualification guidelines compared to other renovation financing options.

FHA 203(k) loans can be a cost-effective way to fund home improvements and may open the door to more home choices, especially in higher-priced markets.

Interest rates for 203(k) loans are usually a bit higher—typically about 0.75% to 1.00% above a standard FHA loan. Even so, because FHA base rates tend to be among the lowest available, 203(k) rates remain competitive.

Borrowers pay standard FHA mortgage insurance, which includes a 1.75% upfront premium (usually added to the loan) and an annual premium of 0.85%, divided into monthly payments.

Limited vs. Standard 203(k) Renovation Mortgages

There are two types of FHA 203(k) loans: the Limited (also called “Streamline”) and the Standard.

The Limited 203(k) offers up to $35,000 for repairs and improvements. It’s designed for non-structural projects such as kitchen and bathroom updates, new appliances, flooring, roofing, interior and exterior paint, safety or health-related repairs, and energy-efficiency upgrades. This option does not allow structural changes, room additions, or any alterations to the home’s footprint.

The Standard 203(k) is intended for larger projects and requires at least $5,000 in renovation costs. It allows major structural work, including converting a single-family home into a 2-, 3-, or 4-unit property, connecting to public utilities, substantial landscaping efforts, accessibility improvements, and even relocating the home. However, it can’t be used for small landscaping jobs, luxury additions like a pool, tennis court, or outdoor kitchen, or any project expected to take more than six months.

When using the Standard 203(k), borrowers must work with a HUD-approved consultant who oversees the renovation from start to finish.

How to Qualify for a 203(k) Renovation Mortgage

To qualify for an FHA 203(k) loan, you’ll need a minimum credit score of 500, though some lenders may set their own requirements in the 620–640 range. Even then, these standards are far more flexible than the 720+ credit score often needed for a conventional construction loan.

The minimum down payment is 3.5% if your score is 580 or higher. If your score falls between 500 and 579, the required down payment increases to 10%. You may also be able to use state down payment assistance programs, and gift funds from family or friends are allowed.

You’ll need to work with an FHA-approved lender and be prepared to provide your Social Security number along with documentation confirming your income, debts, and credit profile. Be aware that a foreclosure within the past three years typically disqualifies you from FHA financing.

With a 203(k) loan, you can borrow up to 110% of the home’s projected post-renovation value or the purchase price plus repair costs, whichever is lower. However, your loan amount must still fall within your area’s FHA loan limits.

You must also plan to live in the home. The 203(k) program cannot be used for fix-and-flip projects. FHA loans are available only to U.S. citizens and lawful permanent residents, and lenders will verify your status during the application process.

The Renovation Mortgage 203(k) Process

The process for getting an FHA 203(k) renovation loan differs slightly from a traditional mortgage.

Start by deciding which repairs and improvements you want to complete. Your lender will require all safety and health issues—such as mold, damaged windows, lead-based paint, or missing handrails—to be addressed first.

After that, you can list the cosmetic upgrades you want. Projects like replacing appliances, adding granite countertops, or remodeling a bathroom are all eligible under the program.

Once you’ve created your project list, you’ll need to hire licensed, insured contractors who operate full time. When a contractor agrees to take on the work, obtain formal bids. Your lender will then provide these bids to the appraiser, who uses them to determine the home’s projected future value, which your loan amount will be based on.

By this stage, the lender will also have reviewed your income, assets, and credit. After all required bids and documents are submitted, your loan can move to final approval. Once the closing documents are signed, the home officially becomes yours.

Renovation work can begin after the loan closes. Depending on the scale of the repairs, you may be able to live in the home during construction. For more extensive projects, you might need temporary housing. You can finance up to six months of mortgage payments into your loan to help cover living expenses while the work is completed.

Frequently Asked Questions

Is the 203(k) program available to investors?
No. A 203(k) renovation loan can only be used by owner-occupants, local governments, or eligible nonprofit organizations. However, an owner-occupant may use a 203(k) loan to buy and renovate a property with up to four units, or certain mixed-use buildings, as long as they meet program guidelines.

Can an Energy Efficient Mortgage (EEM) be used with a 203(k)?
Yes. FHA allows borrowers to combine an EEM with a 203(k) loan. An EEM provides additional funds—above normal FHA loan limits and the approved loan amount—for upgrades that improve the home’s energy efficiency and reduce utility costs. A certified energy rater must perform an audit to confirm that the long-term savings will exceed the cost of the improvements. EEM financing can add up to 5% of the property value.

How can I raise my credit score if it’s low?
Paying bills on time, lowering credit balances, and minimizing new credit inquiries can all help improve your FICO score.

Is there a time limit to complete the renovation?
Yes. Renovation work must begin within 30 days after closing and must be finished within the timeframe stated in your loan agreement. The total renovation period cannot exceed 140 days.

If you’re purchasing a fixer-upper or renovating a home you already own, an FHA 203(k) loan may be a strong option. However, it’s important to compare it to other renovation programs. Conventional choices like Fannie Mae’s HomeStyle loan or Freddie Mac’s CHOICERenovation loan may be better suited for borrowers with stronger credit or those planning upgrades the FHA classifies as “luxury” improvements.

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Notice To Texas Loan Applicants: Consumers wishing to file a complaint against a mortgage banker, or a licensed mortgage banker residential mortgage loan originator, should complete and send a complaint form to the Texas Department of Savings and Mortgage Lending, 2601 North Lamar, Suite 201, Austin, TX 78705. Complaint forms and instructions may be obtained from the department’s website at www.sml.texas.gov

A toll-free consumer hotline is available at 1-877-276-5550. The department maintains a recovery fund to make payments of certain actual out of pocket damages sustained by borrowers caused by acts of licensed mortgage banker residential mortgage loan originators. A written application for reimbursement from the recovery fund must be filed with and investigated by the department prior to the payment of a claim. For more information about the recovery fund, please consult the department’s website at www.sml.texas.gov

Renovation Mortgage 203(k)