FHA 203(K) Loan: 2021 Requirements and Renovation Guidelines

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Posted on February 26, 2021

Buying a fixer-upper is a dream for many homebuyers, and an FHA 203(K) loan can help it become a reality.

The FHA 203K loan provides financing to buy the home and to make desired repairs, renovations and upgrades.

Here’s how it works and what you must know about the 203k loan process.

What is FHA 203(k) loan program?

What is a FHA 203(k) loan? Well, this FHA loan has a couple of nicknames.

You might have heard it called a rehab loan or a home construction loan.

The names give it away – its purpose is to help buyers fix up homes that otherwise may not be eligible for financing.

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FHA 203(K) loans have the same lenient guidelines as a traditional FHA loan.

But there’s an added benefit: you could get a loan for more than the purchase price to pay for renovations or repairs to the home.

What is the FHA 203(K) loan process?

To start the FHA 203K loan process, you’ll get pre-approved.

Good News Lending makes this step a breeze.

We’ll evaluate your credit score, credit history, income, debts and assets to come up with the amount that makes sense for you.

This includes the home’s purchase price and the cost to renovate it.

Once you find a home, we’ll work together every step of the way to complete the application and requirements to close on the home.

You’ll work with contractors to determine the improvements you want.

Sounds intimidating? But don’t worry…

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The average credit score for new, approved home mortgages is 732 according to the FHFA while borrowers with a 600 credit score or less make up just 6.5% of approved home loans.


What's your credit score?  Give the Good News Lending team a call at 901-651-9935 to discuss your options.

We’ll be there with you to go over the contractor’s information, bids and timelines, helping you choose the options that fit within the loan parameters.

Once you’re clear to close, part of the funds go to the seller while the rest goes into a renovation fund account, only to be disbursed as discussed between the lender and contractor.

After the contractors complete the repairs and the home is cleared for occupancy, you move in.

And that’s when you get to enjoy the personal touches you put into the home renovations and repairs.

Maximum 203(K) loan amount

The FHA 203K loan works a little differently than a typical FHA loan.

While you can’t exceed FHA loan limits, most buyers can borrow up to 110% of the home’s value, or the home price plus renovation costs, whichever is less.

If you’re not sure what that might be, don’t worry:

The lending professionals can help you determine how much will be available to you.

And when you know the max amount you can borrow?

You can hit the ground running to plan the future of your fixer-upper with the FHA 203K loan.

You Shouldn't Have To Choose


Too many borrowers think they must choose between the convenience of an online lender and the hands-on service you might get from the "small guys." 


But We Believe You Can Have It All!

Repairs you can do with an FHA 203(K) loan

Picking and choosing repairs can seem tedious or even difficult.

How do you know which repairs are best to do now and which can wait?

First, it depends on the type of loan. 

The FHA renovation loan has two options:


  • Streamline 203k or limited 203k mortgage: Most repairs under this program are cosmetic or ‘minor.’ The repair limit is $35,000, which can include repairs that aren’t structural.
  • Standard 203k rehab loan: The rehab loan includes structural repairs and more expensive renovations.

Keep in mind that any improvements you pay for with a 203(k) loan generally must be completed by a licensed contractor.

But that’s not all...

They’re also subject to approval by an FHA appraiser and may require a HUD consultant to oversee the renovation process.

FHA 203k loan requirements

If you think you want to pursue a fixer-upper, you might be wondering...

Who qualifies for a 203k loan?

Here are the FHA 203K loan requirements:


  • Credit score: You can get an FHA 203(K) loan with a credit score as low as 500, but some lenders can set a higher minimum.
  • Down payment: Like the standard FHA loan, you need at least 3.5% down. Credit scores below 580 require 10% down.
  • Maximum loan amount: FHA limits vary by location, but are generally capped at $356,362. Unless you’re in a high-cost county, then you may be able to borrow up to $822,375.
  • Foreclosure: Generally, you must not have had a foreclosure in the past three years to qualify.

But remember…

You’ll need to apply with FHA 203k lenders, like us here at Good News Lending.

Did You Know?

Mortgage rates have hit all-time lows in recent months.  Some people have been able to take advantage of the opportunity and secure a historically low rate. Since rates change all the time, give us a call at 901-651-9935 for an up-to-date rate quote.

What are the insurance cost for FHA 203(k) loan?

Like standard FHA loans, FHA 203(K) loans require mortgage insurance. You’ll pay two types of mortgage insurance premiums:


  • Upfront mortgage insurance premium (UFMIP)
  • Annual mortgage insurance premium (MIP)

The UFMIP is typically 1.75% of the loan amount.


How much you pay annually for mortgage insurance depends on a few factors, such as the loan amount and down payment.


Want to calculate your MIP? 


Reach out to us here at Good News Lending and we’ll walk you through step-by-step what you can expect.

Ready to apply for an FHA 203(K) loan?

The professionals at Good News Lender are ready to help you get your dream home with an FHA 203K loan.

The FHA 203K loan process is more involved than a traditional FHA loan because it can include coordinating with contractors, appraisers and a HUD consultant.

But we’ve got your back, every step of the way.

We’ll help you understand your max loan amount, what type of FHA 203(K) loan you need and how to get the best rates and terms on the loan.

About the Author

Ever since I was a child, I loved playing Monopoly and learned that borrowing money from the bank was actually a good thing.  "Your indebtedness today is your net worth tomorrow," my father would say!

I’ve been in the mortgage business since 2001 and we’ve helped countless families get the home of their dreams.

I believe the loan process should be the easiest part of buying a home. After all, your closing day should be a celebration, not a day of stress!

Wendy Thompson

Wendy Thompson - President of Good News Lending

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