FHA 203(k) Home Loans for Home Improvement

This is a loan product for homeowners that need money to make improvements on a property they already own or for borrowers looking to buy property in need of improvements also known as a fixer upper. The Federal Housing Administration’s 203(k) loans are for houses that are damaged or are in need of renovation.
If you are purchasing a home, the loan covers the cost of both the property and necessary home improvements. The down payment requirement is currently 3.5 percent of the combined price of the home and repairs with flexibility in qualification requirements
If you own a home that needs help, you can refinance with a 203(k) FHA Home Loan. The loan can cover a vast range of repairs, including room additions, bathroom remodeling, roofing, flooring and air conditioning systems.

Home loan to buy a home

Qualification Requirements:

There are two types of FHA 203(k): standard 203(k) loans for homes that need structural repairs and streamlined 203(k) loans up to $35,000 for homes that need nonstructural repairs. The FHA insures the loans, but the funds come from a mortgage lender.
To qualify for a 203(k), borrowers must plan to live in the home they’re repairing. The following types of residence qualify:

• Houses that need to be demolished and rebuilt are eligible as long as most of the foundation remains.
• Existing building that is at least a year old.
• Single-family, two-family, three-family or four-family dwellings.
• Condos, if they have been approved for FHA loans.
• Mixed-use properties. If you are repairing only the home portion, a mixed residential/commercial property can qualify.
• Homes that must be moved to a new foundation.

Improvement that Qualify

The FHA has specific guidelines about which repairs qualify for 203(k) loans, and the lender will also stipulate what you can do. Eligible improvements include:

• Disability access
• Heating, ventilation and air conditioning
• Plumbing
• Roofing and flooring
• Energy conservation
• Kitchen remodeling
• New appliances
• Room additions
• Decks and patios
• Bathroom remodeling
• Room additions or second-story additions
• New siding
• Painting
• Finishing an attic or basement
• Site grading

Labor costs must be included in the loan, even if the home owner performs their own repairs. The repairs must be started within 30 days and completed within six months.


The FHA 203(k) loan amount includes the purchase price of the home plus the expected price of repairs. The home buyer has to provide a percentage of the loan as a down payment (currently 3.5%).
To apply, the borrower must provide:

• Proof of income
• Proof of assets
• Credit reports will be pulled
• A detailed proposal of the work required on the home, including a cost estimate for each repair, which can include a contingency reserve for cost overages
• A home appraisal, including how much the home will be worth after the improvements are made

An FHA 203(k) loan is especially beneficial for home buyers who cannot afford a finished home and are willing to take on a fixer-upper. If you choose to apply for a 203(k), keep the following in mind:

• Many lenders do not offer 203(k) loans.
• Expect to spend a lot of time on document preparation and bureaucracy.
• FHA 203(k) closing can take 60-90 days.
• Interest rates tend to be high, due to the risk involved to the lender.

Finally, keep in mind that home improvements cannot guarantee an increased value for your home. Be careful not to pour more money into the house than you could recoup in a sale.