203(k) Renovation Loan

Summary:  Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home. 

Purpose:  Section 203(k) fills a unique and important need for homebuyers. When buying a house that needs repair or modernization, homebuyers usually have to follow a complicated and costly process. The interim acquisition and improvement loans often have relatively high interest rates, short repayment terms and a balloon payment. However, Section 203(k) offers a solution that helps both borrowers and lenders, insuring a single, long term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of a property. Section 203(k) insured loans save borrowers time and money. They also protect the lender by allowing them to have the loan insured even before the condition and value of the property may offer adequate security.

Buying a House That Needs Rehabilitation or Renovating Your Home? If you want to finance the purchase of a home that needs rehabilitation or finance improvements to your current home, the Federal Housing Administration’s (FHA) Section 203(k) Rehabilitation Mortgage Insurance Program (203(k) Program) may be the right choice for you. This program is available through FHA-approved lenders. It allows homebuyers to finance the purchase of a home or homeowners to refinance a current mortgage, combining the cost of renovations, repairs, or remodeling into a single loan. The 203(k) Program is available to homebuyers and homeowners, HUD-approved non-profit organizations and government agencies.

Examples of Eligible Improvements • Repair or replace plumbing, heating, air conditioning, and electrical systems • Complete kitchen and bathroom remodeling • Repair or install new roofing, siding and gutters • Create accessibility for persons with disabilities • Build an eligible accessory dwelling unit (ADU) • Convert one-family unit to two- to four-family units • Create additions, finish attics and basements • Renovate or construct a garage • Replace windows or flooring • Make energy efficient upgrades • Repair structural damage 

Why Choose the 203(k) Program? Homebuyers may face a complicated and costly process or be excluded from certain loan programs to rehabilitate or make improvements. The 203(k) Program may also be a great option for a homeowner who wants to stay in their current home and wants or needs to make improvements.

  • Borrowers can obtain funds needed to purchase or refinance, and renovate based on the appraised value once the proposed improvement is completed. Home improvement loans often have high interest rates, short repayment terms, or balloon payments. However, the 203(k) Program offers a solution that helps borrowers by insuring a single, long-term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of a property.
  • Saves time by combining both the purchase or refinance, and rehabilitation of a property into a single loan instead of typical construction lending with two loans. The program saves money with its low down payment, like all FHA-insured mortgages. Also, the rates may be lower than other forms of financing, such as a home equity line of credit or credit cards.
  • An FHA-approved 203(k) Consultant is required for all Standard 203(k) Mortgages* and may be used for Limited 203(k) Mortgages*. The 203(k) Program requires all building permits be obtained prior to commencement of work and posted onsite for the work being performed.