FAQs on the FHA 203(k) Loan Program

The FHA’s 203(k) loan program is perhaps one of the best ways to purchase an existing property that does need a little work. The program is perfect to finance a “fixer-upper” but not all FHA lenders offer the program. Your loan officer can provide you with the general requirements and how the program works, but here are a few Frequently Asked Questions about this special loan program.

What is the FHA 203(k) program? 
The 203(k) renovation loan is designed to provide funds needed to buy or refinance a property as well as borrow more money to make designated improvements to the property all in one loan.

What sort of improvements can I finance with a 203(k) loan? 
Common improvements to existing properties include:

• Roof repair or replacement
• Plumbing and electrical work
• Heating and air conditioning repair or replace
• Kitchen and bath remodels
• Flooring
• New appliances
• Outdoor decks and patios
• Adding additional square footage such as a bedroom or bath
• Other improvements

Can I use the 203(k) loan with a condo? 
Yes, as long as the condominium project is FHA approved. The 203(k) loan can be used to finance a single family home, duplex or 2-4 unit property.

Can I use the 203(k) to renovate my rental property? 
No, the 203(k) can only be used to finance an owner occupied home. For multi-unit properties less than five attached units, you must live in one of the units.

Can I combine the Energy Efficient Mortgage with the 203(k) loan program?  
Yes as long as the improvements made lower the utility payments and the improvements will be paid for by the monthly savings over the life of the loan.

How much can I borrow with an FHA 203(k) loan?  
FHA loan limits for the area where the property is located dictate how much you can borrow with a 203(k) loan. You must also qualify based upon current and future debt to income ratios as well.

Who gets the money for the 203(k) improvements? 
The funds for improvements are held in escrow by a third party and paid out in draws directly to the contractor as work progresses.

How long can I take to finish the improvements?  
Rehabilitation work should begin within 30 days of closing. If the property is uninhabitable while the work is being completed, borrowers may also finance up to six months’ worth of housing payments.