Have you considered a 203(K) Rehab Loan?

October 28, 2022
4 min. read time

What is a 203(K) Rehab loan?

Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home.  

Simply put, you can purchase or refinance a house that needs some help! Certain repairs are allowed through the program to modernize and improve your home and it is all contained within one FHA mortgage!

What kind of repairs and improvements are allowed?

  • structural alterations and reconstruction 
  • modernization and improvements to the home's function
  • elimination of health and safety hazards
  • changes that improve appearance and eliminate obsolescence
  • reconditioning or replacing plumbing; installing a well and/or septic system
  • adding or replacing roofing, gutters, and downspouts
  • adding or replacing floors and/or floor treatments
  • major landscape work and site improvements
  • enhancing accessibility for a disabled person
  • making energy conservation improvements

Need just a small renovation without any structural changes?  Check out the Limited 203(k) loan!

This program permits homebuyers and homeowners to finance up to $35,000 into their mortgage to repair, improve, or upgrade their home. Quickly and easily tap into cash to pay for property repairs or improvements, like remodeling the kitchen, painting the interior or purchasing new carpet. Homeowners using this program to refinance can make property repairs, improvements, or prepare their home for sale.  

Pros and cons of an FHA 203(K) loan


  • You can buy or refinance a home and renovate it with one mortgage
  • You can qualify with much lower credit scores than standard renovation loan programs allow
  • You can borrow based on the value of your home after it’s improved
  • You’ll pay lower rates than unsecured personal loans or credit cards


  • You’ll pay higher mortgage insurance premiums and fees than a standard mortgage
  • You must finance a home you intend to live in
  • You may have to pay out of pocket for reserves to cover unexpected expenses
  • Your loan amount will be restricted by FHA loan limits

How to get approved

To get a 203(k) loan, you must meet the requirements for a standard FHA loan.

Credit score, credit history and down payment. If you’re making the minimum 3.5% down payment, you’ll need a 580 credit score. If your score is between 500 and 579, you must put down at least 10%. At least three years must have passed since any foreclosures.

Mortgage insurance premiums. You’ll pay upfront and annual mortgage insurance premiums. The upfront insurance is 1.75% of your loan amount and the annual insurance ranges from 0.45% to 1.05% of your loan amount.

Loan limits. Keep your total loan amount below the FHA loan limit in your area. The 2022 loan limit for one-unit properties in most of the country is $420,680.

Contingency reserves. Depending on the size of your project, your lender may require that you set aside up to 20% of the cost of the improvements for unexpected costs that may arise. If you don’t have enough equity to roll them into your 203(k)loan, the lender may require proof you have the cash to cover them out of pocket.

Home value. One unique feature of renovation loans is you borrow money based on your “after-improved” value, which gives you more borrowing power than other types of home improvements loans that only consider your current “as-is” value. An approved FHA appraiser inspects your home, and considers the work plan and cost estimate to determine how much the home will be worth with the completed renovations.

Is a 203(K) loan right for you?

Exploring your options before you make a decision is always the best choice. Talk today with one of our expert loan officers who can guide you through the process toward your new home purchase!

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