A Simple Guide to FHA 203(k) Loans
6 minute read
April 11, 2023


If you’re into fixer-uppers or do-it-yourself projects, then an FHA 203(k) loan may be the mortgage for you.

We’re going to go over the fundamental basics of an FHA 203(k) loan, the requirements, and how they work. Additionally, we’ll show you can get started and get an FHA 203(k) loan today. 

What is an FHA 203 K loan?

Let’s start with the basics—an FHA 203(k) loan enables home buyers to purchase a home and roll renovation costs into one payment.

An FHA 203(k) loan is a great way to make home improvements or repairs on a new home or your current home.  

They can also benefit homeowners by refinancing their current mortgage and covering the costs of home improvements.

Like other FHA loans, the government backs FHA 203(k) loans through the Federal Housing Administration. Borrowers can expect flexible requirements and low down payments because it’s offered through the FHA. 

These types of loans consolidate the purchase or refinance of a house and the renovations or repairs into one loan. Otherwise, costs can add up quickly.

Other options for renovations, such as personal loans, may be harder to qualify for and come with high-interest rates. 203(k) loans also work well for those who don’t yet have enough equity in their home for a home equity loan. 

With an FHA 203(k) loan, you’ll only have to go through the mortgage process once, which helps save you time and money. 

Speak with a loan officer about these loans if the home you’re looking to purchase is a fixer-upper or if you’d like to stay in your current home but have significant home improvements to maintain the house. 

There are two types of FHA 203(k) home loans to consider:

Standard 203(k) 

  • Ideal for major renovations and structural alterations
  • No loan amount limits
  • Costs can grow as you’ll at least need an architect, inspector, and a consultant

Streamline 203(k) 

  • Covers the purchase, or refinance, of a home along with the repairs or improvements
  • Can borrow up to $35,000 for renovations
  • A quicker process as not as many third parties are involved 
  • Less costly overall, as renovations are typically simple
Check your mortgage options

FHA 203k loan requirements

Depending on whether you apply for a standard or streamline 203(k) loan, there are various loan requirements. 

The requirements for a mortgage vary per FHA-approved lender. The loan qualifications you can expect for a 203(k) loan include:

  • A minimum credit score of 500 or higher 
  • A debt-to-Income (DTI) ratio of 43% or lower
  • You must live in the home you are renovating

A number of factors determine your credit score, but the big picture is that it shows how well you manage your debt. The general thought is that the higher your credit score, the better mortgage offer you’ll receive, such as a low-interest rate. 

However, if you have a low DTI ratio, then a lower credit score may not impact your approval chances as much for an FHA 203(k) loan.

A debt-to-income ratio can be broken down into two ratios: housing and total ratios. 

These two ratios combined give your DTI, which tells lenders if you’d be a risk to lend to and if you can make your monthly mortgage payments on time. 

A down payment is another important factor when applying for a mortgage. This is one of the costs you’ll have to pay up-front. 

If you can put more down on your home, you may receive offers with better interest rates and terms; it’s something to consider when shopping for a home and home loans.

With an FHA 203(k) loan, you must live in the home as your primary residence to qualify. You can’t use this type of loan to purchase and renovate a home, only to then turn around and sell or rent it out. 

Another requirement is that if you move forward with a standard 203(k) loan, you’ll need to work with US-HUD-approved consultants.

How does an FHA 203k loan work?

An FHA 203(k) loan functions similarly to any typical refinance or conventional mortgage in that you apply and close on your loan only once.

To provide a clear picture of what you can expect, the timeline will follow similarly to a refi or conventional home loan.

  1. Find the home you’d like to purchase and renovate; alternatively, find a consultant, architect, and construction company to assist you in your home improvements
  2. Determine all costs for the desired renovations or repairs
  3. Meet with a loan officer to review your scenario
  4. Once you’re approved, you close on the home loan
  5. Construction begins

There are some ways you can make the process as efficient and smooth as possible. 

If you get preapproved for an FHA 203(k) loan, then you can meet with sellers and lenders, knowing you’ve already had your financial scenario reviewed and approved for a set amount.

This tells sellers that you’re a serious candidate, and there would be no unexpected delays in the sale. This also helps lenders when you go to apply for your home loan.

If you’re looking to purchase a new home, it would be beneficial to use a mortgage payment calculator. While it won’t be able to factor in the construction costs, it would at least provide an estimate of how much it’ll cost you monthly.

Mortgage calculators are a great starting point as you look for your next home.

How can I get an FHA 203k loan?

If you’re ready to take the next step, meet with a lending professional. 

They can review your financial scenario and discuss what options are available to fit your housing needs. 

It would be beneficial to prepare all of the required documentation needed for a loan so that you can get the most out of your meeting.

This can include, but is not limited to: 

  • Proof of identity, like a driver’s license and/or social security card
  • Bank statements
  • W-2 statements
  • List of desired repairs and costs
  • Employer information and income verification
  • Current mortgage information
  • List of debts and assets

Having this documentation on-hand can help expedite the loan process and get you in your home faster.

Move forward with GO Mortgage

Whether you just want to learn more about our advantageous FHA 203(k) loans or you’re ready to move forward and apply, reach out to GO Mortgage. 

Fill out our short questionnaire, and let’s get GOing!

Image by mastersenaiper from Pixabay

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