203k Loans/ FHA Renovation

How does an FHA 203(k) loan work?

203(k) loans have guidelines associated to them that determine how much you’re allowed to borrow for renovating and home improvements. The two types of FHA 203(k) loans are: the limited – also called the “streamline” and the standard. You also have the option to refinance with both of these loan types.

Limited and standard 203(k) loans have different guidelines about borrowing limits for renovations and what you can use the money for. I you want to make an improvements that are deemed for luxury like: swimming pools, outdoor kitchens, generally you wont be able to use the money.

203(k) standard loan: The minimum cost of the renovation must be at least $5,000, and if it is a major repair that is structural, this is considered eligible. A HUD consultant must be available to oversee the project and restoration process.

203(k) limited loan: Loan up to $35,000 for renovations, major structural repairs are not considered eligible here.

Eligible projects that the 203(k) can be used for:

  • Eliminate health and safety hazards.
  • Rehab the plumbing or sewer systems.
  • Improve landscaping design or aspects.
  • Improve home energy-efficiency.
  • Improve accessibility for disabled person.
  • Improve overall health and functionality of a home including attractiveness.
  • Gutter installation, repair and downspouts.
  • Remove any safety or hazards to health.

Qualification for the FHA 203(k)?

  • Credit Score: You should aim to have a score of at least 500 to have a shot at qualifying. Depending on your lender, it may need to be even higher than this.
  • Max loan amount: FHA loan amounts are all different depending on which state/city you are in. In low cost communities, it is generally capped at $420,860. In higher cost areas, you can see limits of up to $970,800
  • Foreclosure: A foreclosure is never a good sign, in many cases one in the past three years will prevent you from qualifying for an FHA loan
  • Down Payment: 3.5% is considered the minimum you need to put down if your credit score is higher tha 580. If you are below 580, you will need to look into down payment assistance. This would be available through state home buyer programs, monetary gifts that could be from family and friends.


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