FHA 203(k) Loan: Requirements and Process

For homeowners looking to buy a fixer-upper, the FHA 203(k) loan combines a home loan with a construction loan in a single, affordable mortgage.

By Jennifer Sisson

Written by

Jennifer Sisson

Freelance writer

Jennifer Sisson has over five years of finance experience and is an investing, mortgage, real estate, and budgeting expert. Her work has been featured by Business Insider and FinanceBuzz.

Edited by Reina Marszalek

Written by

Reina Marszalek

Senior editor

Reina Marszalek has over 10 years of experience in personal finance and is a senior mortgage editor at Credible.

Updated January 31, 2025

Editorial disclosure: Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

Since lenders usually issue loans based on the current value of the home rather than its projected value, it can be difficult for homebuyers to come up with the money for repairs. An FHA 203(k) loan is designed to help homeowners who want to buy fixer-uppers and need funds to complete the renovations. You can take out one loan to cover both the purchase of a distressed property and the cost of approved repairs.

Before you take out a 203(k) loan, find out how it works, what types are available, and what renovations are covered.

What is an FHA 203(k) loan?

A 203(k) loan is a type of FHA loan that finances both the cost to purchase a home and make repairs. There are two kinds of 203(k) loans:

Limited 203(k) loans are for minor, nonstructural repairs
Standard 203(k) loans are for larger, structural renovations

For standard loans, you and your lender must work with a 203(k) consultant, who is responsible for assessing the cost and maintaining the timeline for needed repairs; it’s optional to work with a consultant if you use a limited 203(k) loan.

The consultant keeps tabs on the project from conception to closing, assuring that the repairs are up to code and complete before the loan is finalized.

For example:

Minor fixes could include remodeling a bathroom or replacing siding. Major structural renovations include larger projects, such as making a two-bedroom home into a four-bedroom one.

Who is eligible for an FHA 203(k) loan?

The requirements for borrowers are the same as for other FHA loans. To be eligible for a 203(k) loan, you must have a credit score greater than 500 (580 for maximum financing), be a U.S. citizen or lawful permanent resident, have a debt-to-income ratio (DTI) of no more than 43% and show reliable income to repay the mortgage.

What types of renovations are covered under an FHA 203(k) loan?

Most home improvements that augment the function and value of the home are covered. Examples of approved FHA 203(k) eligible improvements include:

Replacing outdated HVAC or plumbing systems
Kitchen and bathroom remodels
Installing a new roof
Improving accessibility features for people with disabilities
Building an accessory dwelling unit (ADU)
Finishing an attic or basement
Replacing windows or flooring
Making energy-efficient upgrades
Repairing structural damages

Unapproved renovations are commercial and luxury items, such as swimming pools, tennis courts, or gazebos.

How does the FHA 203(k) loan process work?

There are three phases you move through when getting an FHA 203(k) loan:

Origination phase: First, you select a property, talk to a lender, and speak with a consultant to guide the process. After writing up the bid for improvements, the lender closes the transaction and the renovations can begin.
Improvements phase: The contractors draw on loan funds and begin the projects. At various stages, the consultant and you review and approve the work. Checks for repair work are made out to both the contractor and you.
Project completion phase: Once all the work is completed, you and the consultant approve it. The consultant gets a certificate of occupancy, and the lender closes out the escrow account and distributes the remaining funds.

What are the pros and cons of an FHA 203(k) loan?

A 203(k) loan isn’t a magic income stream to fund all the needs of your new home; there are some limits to be aware of too:

Pros

Low down payment: Like other FHA loans, 203(k) loans require a down payment as low as 3.5%.
Low interest rate: FHA 203(k) loans typically offer lower interest rates than construction loans from private lenders.
Lenient financial requirements: The credit score requirement for FHA 203(k) loans is much lower (500-580) than that of conventional mortgages, which tends to be about 620.
A single set of closing costs: Rather than paying for the origination fee on a mortgage and a loan for repairs, you can consolidate these closing costs by having a single loan for both.

Cons

MIP each month: For loans created after June 2013, you must pay a mortgage insurance premium (MIP) until you pay off your loan or refinance. By contrast, conventional loans often drop private mortgage insurance once you achieve 80% equity in your home.
Paperwork: 203(k) loans require documentation (sometimes overseen by a consultant) with many required signatures. Between waiting on bids from contractors and getting approval from your consultant, the bureaucratic burden can be a hefty one.
Time: A 203(k) loan takes longer to execute because there are more steps involved.

FHA 203(k) loan FAQ

What is the difference between a Standard and Limited 203(k) loan?

Open

The main difference between these two types of FHA 203(k) loans is the extent of the renovations covered in each. A Limited 203(k) loan has a maximum of $75,000 for renovations, which are constrained to nonstructural repairs.

Repairs with a Standard 203(k) loan must cost a minimum of $5,000 and can include major, structural fixes. Both loans must stay within FHA total cost limits.

How long does it take to close an FHA 203(k) loan?

Open

Because of the back-and-forth interactions between the buyer, lender, consultant, and contractor, FHA 203(k) loans may take a bit longer to close. While the timeframe depends on the complexity of the repairs, the finances of the borrower, and the experience of the lender, expect it to take between 45 and 60 days.

Can I use an FHA 203(k) loan for investment properties?

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You can use an FHA loan for homes with one to four units, and you can live in one unit while renting out the other(s). Primary residences with accessory dwelling units (like a guest house or in-law suite) are also eligible. At least one of the borrowers must live in the property for it to be eligible, meaning properties purchased solely as rentals do not qualify.

Are there restrictions on the types of homes eligible for 203(k) loans?

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Yes. The home must be used as your primary residence for at least a year. Because all renovations must be completed within six months of the loan’s closing date, homes that require lengthy or extensive repairs to be livable may not be covered.

What is the minimum credit score required for an FHA 203(k) loan?

Open

To be eligible for the maximum financing amount, borrowers must have a credit score of 580 or higher and put down 3.5%; otherwise, they must have a score of at least 500 and make a 10% down payment on the loan.

Meet the expert:

Jennifer Sisson

Jennifer Sisson has over five years of finance experience and is an investing, mortgage, real estate, and budgeting expert. Her work has been featured by Business Insider and FinanceBuzz.