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Mortgages & financing

FHA 203(k) Loan

Also called 203(k), FHA rehab loan, renovation mortgage

In short

An FHA 203(k) loan is a government-insured mortgage that combines a home's purchase price and the cost of repairs into one loan. It lets owner-occupants buy and fix up homes that need work.

Who it's for
Owner-occupants
Covers
Purchase plus renovation
Two versions
Limited and standard
Value used
As-completed appraisal

How a 203(k) works

The lender appraises the home based on its value after the planned improvements. Your loan covers the purchase plus the repair budget, and repair funds are held in a separate account and paid out to contractors as work is completed. You make one mortgage payment from the start.

Limited vs. standard

The limited 203(k) covers non-structural repairs up to a capped amount, such as kitchens, flooring, roofs and systems. The standard 203(k) covers larger and structural work and requires a HUD consultant to oversee the project. Repair caps and FHA loan limits are set by HUD and updated periodically.

Using a 203(k) on distressed homes

Bank-owned and foreclosed homes often fail standard FHA condition rules. A 203(k) can make them financeable for buyers who plan to live there. Expect more paperwork, contractor bids before closing, and a longer timeline, so warn the seller and set contingency deadlines accordingly.

Example

Buying and renovating with one loan

A buyer finds a REO home for $200,000 that needs a new roof, HVAC and kitchen totaling $45,000. The as-completed appraisal is $265,000. With a 203(k), the buyer finances $245,000 (purchase plus repairs, plus allowed fees and reserves), puts down the FHA minimum on that total, and the contractor is paid from the repair escrow as work is finished.

FHA 203(k) Loan vs. Hard Money Loan

FHA 203(k) Loan

An FHA 203(k) loan is a government-insured mortgage that combines a home's purchase price and the cost of repairs into one loan. It lets owner-occupants buy and fix up homes that need work.

Hard Money Loan

A hard money loan is a short-term loan from a private lender, secured mainly by the property's value rather than the borrower's income. Investors use it to buy and renovate properties quickly.

The differenceA 203(k) is a long-term, government-insured loan for owner-occupants; a hard money loan is a short-term private loan for investors.

Frequently Asked Questions

Related terms

MortgageMortgages & financingA mortgage is a loan used to buy real estate, secured by the property itself. If the borrower stops paying, the lender can take the property through foreclosure to recover what is owed.After Repair Value (ARV)InvestingAfter repair value (ARV) is the estimated market value of a property once planned repairs and renovations are complete. Investors use it to decide how much to pay for a fixer-upper.As-Is SaleBuying & closingAn as-is sale means the seller will not make repairs or offer credits for the property's condition. The buyer accepts the home in its current state, though inspection rights and required disclosures may still apply.AppraisalBuying & closingAn appraisal is a licensed appraiser's independent estimate of a property's market value. Lenders require one to make sure the home is worth at least the amount being borrowed.REO / Bank-Owned PropertyForeclosure processAn REO (real estate owned) or bank-owned property is a home a lender took back after it failed to sell at foreclosure auction. The lender then sells it, usually through a real estate agent.Home InspectionBuying & closingA home inspection is a professional visual examination of a home's structure and systems, ordered by the buyer to find defects before closing. It usually happens during the inspection contingency period.Down PaymentMortgages & financingA down payment is the part of a home's purchase price the buyer pays upfront in cash rather than borrowing. It is usually stated as a percentage of the price and is due at closing.Private Mortgage Insurance (PMI)Mortgages & financingPrivate mortgage insurance (PMI) protects the lender, not the borrower, if a borrower defaults on a conventional loan. It is usually required when the down payment is less than 20% of the home's value.

Learn more in the knowledge base

How to Finance a Foreclosure or Distressed PropertyGuide · 7 min readDistressed properties are harder to finance than move-in-ready homes. Condition, timing and the seller's terms all limit which loans will work. This guide matches financing options to each kind of distressed purchase and explains the trade-offs.How to Buy a Bank-Owned Home: A Step-by-Step GuideGuide · 6 min readBuying a bank-owned home looks like a regular purchase, but the seller is a lender with its own forms, deadlines and approval process. This guide walks through each step, from getting financing in place to closing, and points out where REO deals differ from a typical sale.Proof of Funds and Pre-Approval for Bank-Owned OffersGuide · 6 min readBank-owned sellers usually want evidence that you can close before they will look at your offer. This guide explains what REO sellers ask for, how a pre-approval letter and proof of funds differ for financed and cash buyers, how to handle a seller's preferred-lender request and when to have each document ready.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.