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How Does the 203k Loan Program Work?

203k rehab houseYou found the perfect house. Great location and the price is right, but, it does need some work. If you're like most home buyers, you can afford the down payment and closing costs, but you can't afford the repair and rehab expenses. So what do you do? You purchase the home and rehabilitate the home with the 203k streamline all in one loan.

203K Streamline Loan, also known as the FHA 203k home loan program is designed to help Pennsylvania home buyers (and homeowners) purchase and include rehabilitation (or repair) costs in one home loan. This FHA program can also be used to include improvement costs with a mortgage refinance. The Streamline 203k program is designed for simple rehabilitation and/or improvements. Unlike the “original” 203k loan, plans, consultants, engineers and/or architects are not required.

How much can I borrow? Is there a minimum rehab amount?

There is no minimum repair amount with the FHA home improvement loan however, $35,000 is the maximum repair and or rehabilitation cost with the streamline 203k program. The maximum loan amount for the 203k loan is limited by the lesser of the borrowers approval limit, the FHA maximum mortgage limit for the area or 110% of the improved appraised value.

The maximum loan amount is determined by the FHA lending limit for the US county where the house is located and the number of living units.


Can the 203k program be used for repairs and improvements on purchases of HUD homes?

Yes! If the HUD home is designated as “insurable” with repair escrow of $5,000 or less in required repairs or “uninsurable” with more than $5,000 but no more than $35,000 in required repairs. Provided, that the repairs qualify under the 203 streamline program.

Who's eligible for a 203k loan

Owner Occupants – purchase and refinance, Non - Profits. Investors are NOT allowed with the 203k loan

203k loan term options

30 or 15 years and one year adjustable rate mortgages

What types of properties are eligible for the FHA home improvement loan?

  • Single family homes
  • FHA approved condominium units
  • Townhouses
  • Mixed use (i.e. storefront)
  • One to four unit residential buildings
  • The 203k streamline program can be used to convert a one family dwelling to a two, three, or four-family building. Existing multi-unit buildings can be decreased to a one to four family unit.

What improvements are eligible under the new FHA Streamlined k program?

The Streamlined (k) program permits the following improvements and/or repairs shown below:

  • accessibility improvements for persons with disabilities
  • add exterior decks, patios, porches
  • basement finishing and remodeling, which does not involve structural
  • basement waterproofing
  • dishwashers and microwave ovens
  • flooring
  • HVAC systems
  • lead-based paint stabilization or abatement of lead-based paint
  • minor remodeling, such as kitchens, which does not involve structural
  • painting, both exterior and interior
  • purchase and installation of appliances, including free-standing
  • septic system and/or well repair or replacement
  • weatherization, including storm windows and doors, insulation,
  • window and door replacements and exterior wall re-siding
  • plumbing and electrical systems
  • ranges, refrigerators, washers and dryers,
  • weather stripping, etc.
  • roofs, gutters and downspouts

The following repairs and rehabilitation costs are ineligible under the 203k streamline program, however, these costs are better suited under the traditional 203 home loan program.

  • Any repair or improvement requiring a work schedule longer than six (6) months;
  • Landscaping or similar site amenity improvements;
  • Major rehabilitation or major remodeling, such as the relocation of a load-bearing wall;
  • New construction (including room additions);
  • Repair of structural damage;
  • Repairs requiring detailed drawings or architectural exhibits;
  • Rehabilitation activities that require more than two (2) payments per specialized contractor.

The mortgage lender will review the home buyer (homeowner’s) proposed repair or rehabilitation plan and cost estimates to ensure the planned work meets the FHA 203K underwriting guidelines.

Rotating question mark  Frequently Asked Questions About FHA 203(K) Loans

Q. Are 203k loans still available?
A. FHA 203(k) loans are available for purchase and for refinance.

Q. Can a first time home buyer get a 203k loan?
A. First time home buyers are eligible for the 203(K0 program, provided the applicant meets the usual FHA guidelines.

Q. Can I buy appliances with a 203k loan?
A. Appliances are covered with the 203(K) program

Q. Can I do the repairs myself with a 203k loan?
A. Maybe. The FHA allows borrower(s) to make the desired repairs/renovation, however, the borrower must be skilled and licensed to make the desired improvements. The repairs must be completed within six months of loan closing. Borrower(s) must a provide a letter explaining their ability to perform the work. Borrower(s) must not be reimbursed for labor costs when performing their own work under a Rehabilitation Self-Help Agreement. Only materials cost will be reimbursed. The borrower must not be reimbursed for labor costs when performing their own work under a Rehabilitation Self-Help Agreement. Only materials cost will be reimbursed. the borrower must not be reimbursed for labor costs when performing their own work under a Rehabilitation Self-Help Agreement. Only materials cost will be reimbursed.

Q. Can you build a garage with a 203k loan?
A. Garages are eligible with the "full" 203(K) program.

Q. Do 203k loans have PMI?
A. The FHA 203(K) loans come with PMI, called MIP, mortgage insurance premium.

Q. Where do I find FHA 203k lenders?
203k FHA loan lenders

Q. Who picks the 203k contractor?
A. You do! The home buyer (or homeowner in the case of a refinance) selects the contractor(s) who will provide estimates for work to be done. The contractor(s) must be licensed (if required by the state or municipality and proved suitable insurance coverage. 203k Consultant Lookup