FHA 203(k) Rehab Loans

mortgageporterhouseEDITORS NOTE: We currently do FULL FHA 203k Rehab loans instead of streamline and loan limits have changed since this post was written in 2011.

HUD’s FHA 203(k) loans are very popular right now considering the many homes that may have been abandoned or neglected and need some TLC.  FHA 203(k) loans allows the cost of certain repairs and improvements to be added to the sales price which essentially provides borrowers an “all in one” home repair loan for permanent financing.  The down payment is basically based off of the sales price plus the costs associated with the improvements using FHA’s minimum allowed down payment. FHA 203k loans are  a great choice for fixer-uppers or homes that need some modernization.

The maximum loan amount for a purchase using 203k financing is the lesser of the “as-is” value of the property (based on the appraisal) plus the rehab cost or 110% of the expected “after value” with the rehab.  The maximum loan amount is limited FHA’s loan limits.  See below for current FHA loan limits in Washington state.

This program is one-to-four unit dwellings and FHA approved condos as long as the homes are owner occupied.  This program does not allow investors.  Most improvements are eligible as long as they add value and are permanently affixed to the foundation. Just a few examples of improvements include painting, room additions, kitchen remodeling, roofing and decks.  Luxury items (such as swimming pools) and improvements to detached structures are not permitted.

Certain expenses are eligible to be included in the 203k loan, such as:

  • the cost of the materials used in the rehab
  • labor
  • permits, fees, inspections by qualified home inspector
  • up to six months of mortgage payments (while your home is being renovated, you will be making the mortgage payments)
  • a contingency reserve (around 15% depending on the project)

A HUD approved consultant works with the borrower to help determine what improvements FHA will require (such as energy conservation, local codes, safety, etc.) as well as the improvements the buyer would like to have done.   The consultant will develop a list of proposed improvements that will be submitted to the lender for review.

Rehabilitation construction must start within 30 days of closing with all work completed within six months of closing.

PS: FHA 203k rehab loans are not just for home buyers, they can be used to refinance an existing mortgage and pay for improving a home too!

If you would like more information about FHA’s 203k Rehab loan for home located in Washington state, please contact me.  I have been originating FHA loans at Mortgage Master Service Company since April 2000.


  1. Hello! We are interested in a rehab loan!
    We live in Mukilteo and want to buy a fixer. We need to do some work on it throughout the first several months we are there.

    Please let us know if you can help determine if this loan is right for us.

    Thank you!

  2. Brook Robles says

    hi Rhonda,
    My name is Brook, I have been helping my mother in-law to find a house that fits her fixed budget.. And then we came across the perfect one. but it does need some work. but the house is sound. So I started researching loan options for her , because normal loan companies won’t touch it.. So here I am. I did fill out a short app. for her through the link AT the bottom of your page.. This house we have locked under contract for $25,500 And is worth at least $86,000. It needs about 15,000 in updates and repairs, and then it would be perfect for her… The reason we are getting it so reasonable, is it is by the rail road track.. But momma doesn’t care, so thats not a problem.. please let me know if there is anything else we should do, to help the process.. tHANK YOU VERY MUCH.. Is Mortgage Masters your company?

    Look forward to hearing from you.. Brook

    • Hi Brook,
      If the home is very near rail road tracks, lenders may have an issue because of how the location may impact the value and use of the home. Lenders may also call for the work to be done prior to closing depending on what the repairs are.

      Mortgage Masters is not my company – I’ve been here for 14 years and it’s owned by my in-laws. 🙂

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