What is an FHA 203(k) Loan?
An FHA 203(k) loan is basically the same as a regular FHA [called a 203(b)], but with a twist. An FHA 203(k) loan permits homebuyers to finance repair/improvement money into their mortgage to repair, improve or upgrade their home. With this loan option, homebuyers can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or FHA appraiser or homebuyer preferences, such as energy efficient improvements, replacement of existing countertops, appliances, floor coverings, etc. There are two types of FHA 203(k) Loans: Standard/Rehab (minimum $5,000 up to 110% of the improved appraised value) & the Streamline (work is less than $35,000…up to 110% of the improved appraised value). Because the FHA 203(k) Rehab loan is more like a construction loan, the most common version is the FHA Streamline 203(k) Loan.

Example: Purchase price is $100,000. Upgrades/Repairs/Improvements will cost $15,000. Borrowers loan amount is $115,000 (max 110% of after fix-up appraised value). 

What are the benefits of using an FHA 203(k) Loan?
The purchase of a house that needs repair is often a catch-22 situation, because the bank won’t lend the money to buy the house until the repairs are complete, and the repairs can’t be done until the house has been purchased. HUD’s FHA 203(k) loan program can help you with this quagmire and allow you to purchase or refinance a property plus include in the loan, the cost of making the repairs and improvements. Plus the mortgage loan interest on the FHA 203(k) loan qualifies for the mortgage interest tax deductions like all other mortgage loans. So, the interest that the borrower pays on this “construction” can be all tax deductible! 

Who qualifies for an FHA 203(k) Loan?
Any owner occupant primary residence borrower or qualified non-profit group who qualifies for an FHA loan can also qualify for an FHA 203(k) Loan. No investor purchases using the FHA 203(k) loan have been allowed since 1996. 

What type of properties qualify for an FHA 203(k) Loan?
An FHA 203(k) Loan can be used for one-to-four unit dwellings, such as Single Family Detached Homes, Duplexes, Triplexes, 4-plexes, Condominiums (certain restrictions apply) and Mixed-Use Residential (certain restrictions apply).

What types of repairs and/or modifications are acceptable for an FHA 203(k) Loan?
Any repairs/improvements/modifications/modernizations that add value to and/or improve the property are acceptable for an FHA 203(k) Loan. The improvements must comply with HUD’s Minimum Property Standards (24 CFR 200.926d and/or HUD Handbook 4905.1) and all local codes and ordinances. Structural modifications  and any work in excess of $35,000 are NOT allowed for the FHA 203(k) Streamlined Loan, but the FHA 203(k) Rehab does allow for structural modifications and for work in excess of $35,000. Landscaping and luxury items such as BBQ’s, Gazebos, spas, etc. are not allowed for any 203(k) loan. However, limited pool repair (max $1500-subject to lender approval) is allowed under both versions of the FHA 203(k) loan (subject to lender approval).
Examples of allowable repairs/modifications/renovations for the FHA 203(k) loan (not an all-inclusive list): 

• Energy Efficient upgrades (windows, insulation, solar systems, etc.)
• Repair/Replacement of roofs, gutters and downspouts
• Repair/Replacement/upgrade of existing HVAC systems
• Repair/Replacement/upgrade of plumbing and electrical systems
• Repair/Replacement of flooring
• Kitchen remodeling
• Painting, both exterior and interior
• Weatherization, including storm windows and doors, insulation, weather stripping, etc.
• Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens
• Accessibility improvements for persons with disabilities
• Lead-based paint stabilization or abatement of lead-based paint hazards
• Repair/replace/add exterior decks, patios, porches
• Basement finishing and remodeling
• Basement waterproofing
• Window and door replacements and exterior wall re-siding
• Septic system and/or well repair or replacement
• Stuctural repairs/modifications (moving walls, repairing foundations, etc.)

Is there a minimum or a maximum repair amount for an FHA 203(k) Loan?
There is NO minimum repair amount required for an FHA 203(k) Streamlined Loan. The maximum repair amount for an FHA 203(k) Streamlined Loan is $35,000 or 110% of the after fix-up appraised value, whichever is less. The minimum amount for the FHA 203(k) Rehab Loan is $5,000 and the maximum is limited by lesser of the borrowers approval limit, the FHA maximum mortgage limit for the area or 110% of the improved appraised value. 

Will my mortgage lender inspect the repairs/improvements?
According to HUD, on the Streamline version, for repairs in excess of $15,000, the Lender must perform or obtain an inspection of the completed work by a third party. For repair costs not exceeding $15,000, the Lender is not required to perform, or have others perform, inspections of the completed work. However, the Lender may choose to obtain or perform inspections if it believes such actions are necessary for program compliance and/or risk mitigation. Lenders may also ensure that the repairs and/or improvements have been completed by obtaining contractor’s receipts or by a signed Mortgagor’s Letter of Completion. If the Lender determines that an inspection(s) by a third party is necessary to ensure proper completion of the proposed repair or improvement item, the Lender may charge the borrower for the costs of no more than two inspections per each contractor. To eliminate the need and cost for an inspection of the completed repair(s) or improvement(s) when not exceeding $15,000, the Lender may accept receipts or proof of completion of the work to the homeowner’s satisfaction from the contractor. Before a final release is made, the home owner must sign a statement acknowledging that the work has been completed in a professional and satisfactory manner. According to HUD, for the Standard version, all work must be inspected by the 203(k) Consultant or the FHA appraiser prior the contractor receiving each draw/payment. 

What is a contingency reserve?
A contingency reserve is usually 10%-20% of the repair/renovation amount and its purpose is incase of any potential cost overruns. A minimum of a 10% contingency reserve is required for the FHA 203(k) Rehab but none is required for the FHA 203(k) Streamline. Any monies saved or not spent may be used to complete additional work (subject to lender approval) or a one-time principle balance reduction in the mortgage amount. 

Do I need to hire a HUD-Certified 203(k) Consultant?
For the FHA 203k Rehab, a HUD-Certified 203k Consultant is required, but is NOT required for an FHA 203(k) Streamline. However, you are allowed to hire anybody you think will help you to make good real estate decisions. Even if a HUD 203(k) Consultant is NOT required, you lender may require one. Just because HUD doesn’t require the use of a 203(k) Consultant, doesn’t mean that the lender making the loan won’t require one. Always check with the lender first. We always recommend the use of a 203(k) Consultant for all 203(k) loans, because they can add an extra layer of protection and information that only they can provide. 

Can I do the work myself?
YES, subject to your lender’s approval.  However, if the borrower wants to do any work or be the general contractor, they must be qualified to do the work, and do it in a timely and workmanlike manner. This means that if you want to do the work yourself or be your own GC, then you MUST be skilled and licensed to do such work. It is very important that the work be done in a time frame that will assure the completion of the work that will be agreed upon in the Renovation Loan Agreement (signed at closing). A borrower doing their own work can only be paid for the cost of the materials…never the labor. Contractor estimates are still usually required and the loan amount is usually based on those estimates. Monies saved or not spent can be allocated to cost overruns, additional improvements, or a one-time principle balance reduction. 

What is an FHA approved contractor?
There is no such thing as an FHA approved contractor for the FHA 203(k) loan. Neither HUD nor FHA approves or endorses contractors for the 203(k) loan program.  HUD/FHA allow each lender to determine which contractors they will allow to do the work because it is their money they are lending. However, HUD/FHA does approve lenders and you are required to use an FHA approved lender. An approved contractor on this site is a  contractor who is experienced/knowledgeable with the FHA 203(k) Loan, can work within the guidelines of the 203(k) loan program and understands the necessary and recommended process for the FHA 203(k) loan program. The 203(k) Contractors listed on this directory have gone through a strict 7-step approval process where their expericece/knowledge of the FHA 203(k) program has been verified and tested and business and customer references have been contacted and verified. Our approval process will exceed the requirements of most, if not all, FHA lenders for the 203(k) loan program. 

How do the contractors get paid?
The contractors get paid by the borrower’s lender through escrowed funds. At closing, the lender places the repair/improvement funds into an escrow account. For the FHA 203(k) Streamline, after closing on your home, contractors can request up to 50% of the job cost for materials/supplies (not to exceed actual cost of materials/supplies). Once all the work is complete, the contractors can request final payment of the remaining portion of the job cost according to the proposal that was submitting to the borrower and the lender. For the FHA 203(k) Rehab, contractors may request up to 5 draws for payment. For each draw request on the 203(k) Rehab, an inspection is required. If more than one tradeline is used, it is recommended that you hire an approved general contractor to coordinate all the work. 

What costs/fees are involved with an FHA 203(k) Loan?
The borrower will incur the fees normally associated with an FHA loan (contact your lender and/or real estate agent for more detailed information). In addition, other costs may include: 

• a 2nd appraisal fee…usually not needed (paid at time of service),
• fees charged by contractors and consultants (estimates, inspections and re-inspections, etc.),
• slightly higher interest rate (typically 1/8%-1/2% more than traditional FHA loans) and
• a 10%-20% contingency reserve (usually only for the Rehab version) based on the repair/improvement amount to cover any potential overages (added into the loan amount).

Can an investor use the FHA 203(k) Loan?
No. The borrower must be a primary residence owner occupant or a qualified non-profit group. 

Can I refinance my existing mortgage loan into an FHA 203(k) Loan?
Yes, you can refinance your existing mortgage into an FHA 203(k) loan. The FHA 203(k) Streamlined loan is also available for mortgage refinance transactions including those where the property is owned free-and clear. Only credit-qualifying “no cash out” refinance transactions with an appraisal are eligible for the FHA 203(k) Streamlined Loan. If the borrower has owned the property for less than a year, the acquisition cost must be used to determine the maximum mortgage amount. The requirement to use the lowest sales price within the last year does not apply to the FHA 203(k) Streamlined Loan. 

What are the recommended steps to purchase a property using the FHA 203(k) Loan?
There are NO required steps or any specific order that items must be completed. However, to ensure a smooth real estate purchase, these are the recommended steps to purchase a home using an FHA 203(k) loan: 

• The Homebuyer selects an FHA-approved 203(k) lender and real estate agent knowlegeable with the FHA 203(k) loan.
• The Homebuyer locates a home and executes a sales contract after doing a feasibility analysis of the property with their real estate agent. The contract should state that the buyer is seeking an FHA 203(k) loan and that the “contract is contingent on loan approval based on additional required repairs by the FHA or the lender” or the “contract is contingent upon buyer(s) obtaining an FHA 203(k) loan without conditions”.
• Then, during the inspection period, the Homebuyer has 2 options: 1) have his/her lender order the appraisal immediately after contract acceptance to determine what are the minimum repairs/improvements required to purchase the home and then obtain a loan based on that information (may require a 2nd appraisal) OR 2) get a detailed proposal(s) showing the scope of work to be done, including a detailed cost estimate on each repair or improvement of the project and then have the appraisal performed to determine the after-renovation value of the property. This choice is made by the homebuyer. A HUD Consultant, if required/needed, is also used during this period. The appraisal, contractor’s write up and the HUD Consultants Scope of Repair report are submitted to the lender for approval.
• If the borrower passes the lender’s credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs plus any required contingency reserves, any allowable closing costs and mortgage payments (only on 203(k) Rehab–up to 6 months).
• At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs/improvements and any allowable closing costs and/or mortgage payments during the rehabilitation period.
• You now own the home and can begin the renovations.
• Escrowed funds are released to the contractor(s) during construction through a series of draw requests for completed work. To ensure completion of the job, 10% of each draw is usually held back; this money is paid to the contractors after the lender determines there are no liens on the property.
• For the Streamline – The property needs to be livable within 30 days after closing and all work must be completed within 90 days after closing. For the Rehab – The owner/borrower cannot be displaced from their home for more than 30 days and all the work needs to be completed within 6 months.

Where is the FHA 203(k) loan available?
An FHA 203(k) loan is available in all 50 US States. The first Contractory directory for the FHA 203(k) loan program  was in Arizona and has since expanded to all 50 US States. This Contractor directory for the FHA 203(k) loan program serves the following areas:
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia (DC), Florida, Georgia, Guam, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Virgin Island, Washington, Washington DC, West Virginia, Wisconsin, Wyoming.