FHA 203(k) Loan: Renovation Mortgage Guide
Fixer-upper homebuyers often choose the Federal Housing Administration’s 203(k) loan to roll the cost of buying a home and making improvements to it into one loan, while taking advantage of more lenient qualifying requirements than other renovation loan programs offer. Understanding how the FHA 203(k) loan program works — and its limitations — will help you decide if it’s the best home improvement financing option for you.
How an FHA 203(k) loan works
An FHA 203(k) loan is a renovation mortgage insured by the Federal Housing Administration (FHA). It allows homebuyers to buy or refinance a home and finance the cost of repairs or improvements using one loan.
A portion of the 203(k) loan balance is used to purchase the home or pay off an existing mortgage, and the remainder is placed in an escrow account to cover the rehab costs as work is completed, much like a construction loan. A 203(k) loan can be a fixed- or adjustable-rate mortgage (ARM).
There are two versions of the 203(k) loan: limited and standard. A limited loan is designed for smaller home improvement projects, while a standard loan helps fund larger rehabilitation projects.
Types of FHA 203(k) loans
Here’s a brief overview of the difference between the two types of 203(k) loans:
| Type of loan | Loan limit | Minimum project cost | Eligible projects |
|---|---|---|---|
| Limited 203(k) loan | Up to $75,000 | None | Minor remodeling and non-structural repairs, such as redesigning a kitchen, painting rooms or purchasing new flooring |
| Standard 203(k) loan | Subject to your area’s FHA loan limits, which vary by county | $5,000 | Major renovations and structural additions, such as replacing a roof or adding on a sunroom |
Wondering what the FHA loan limits are in your county? Check out our guide on the 2025 FHA loan limits here.Limited 203(k) loan
The limited FHA 203(k) rehab loan is geared toward minor improvements and repairs. No structural work is allowed, so you won’t be able to knock out walls or add rooms. In some cases, borrowers may be allowed to do some of the home improvement work, but a licensed contractor must be involved in the process. A 203(k) consultant isn’t required on a limited 203(k) loan.
Standard 203(k) loan
The standard 203(k) loan is for major renovation or remodeling projects. An FHA-approved 203(k) consultant must oversee the progress of the licensed contractor’s work from estimate to completion. This version of the 203(k) program allows for structural improvements, including room additions, but still prohibits any “luxury” improvements like swimming pools or outdoor fireplaces.
What does an FHA 203(k) consultant do?
The 203(k) consultant is a state-licensed architect, contractor, engineer or inspector who serves as a liaison between the buyer, contractor and lender. Your consultant follows 203(k) guidelines to sign off on the release of funds as the work is finished, and the funds go directly from the lender to the contractor or another service provider.
Eligible projects
Both types of 203(k) loans can be used to finance renovations on an eligible one- to four-unit property that’s more than a year old.
The limited FHA 203(k) mortgage only allows for smaller home improvements that can be completed within nine months.
| Limited 203(k) loan | Standard 203(k) loan |
|---|---|
|
|
Refinancing with an FHA 203(k) loan
The 203(k) loan program can be used for major or minor improvements to your current home. If you have enough home equity, you may even be able to roll in some of your closing costs.
In this case, the 203(k) loan will be used to pay off your current mortgage and the remaining amount will be put in an escrow account that will be used to pay for your renovations or improvement projects.
Who qualifies for an FHA 203(k) loan?
To get a 203(k) loan, you must meet the qualifying requirements for a standard FHA loan.
- Credit score and down payment. If you’re making the minimum 3.5% down payment, you’ll need a 580 credit score. If your score is between 500 and 579, you have to put down at least 10%. At least three years must have passed since any foreclosures.
- Mortgage insurance premiums. You’ll pay upfront and annual mortgage insurance premiums. The upfront insurance is 1.75% of your loan amount, while the annual insurance ranges from 0.15% to 0.75% of your loan amount.
- Lender. You’ll need to work with an FHA-approved lender. Not all lenders offer FHA 203(k) loans, so it may take longer to gather quotes from multiple companies to determine the best FHA lender for your project.
- Loan limits. Keep your total loan amount below the FHA loan limit in your area. The 2025 loan limit for one-unit properties in most of the country is $806,500. In certain high-cost areas, that limit extends to $1,209,750.
- Contingency reserves. Depending on the size and nature of your project, your lender may require that you set aside up to 20% of the cost of the improvements for unexpected expenses that may arise.
- Home value. One unique feature of renovation loans is you borrow money based on your “after-improved” value, or what your home will be worth once your renovations are completed. This gives you more borrowing power than other types of home improvement loans that consider your current “as-is” value.
Is an FHA 203(k) loan worth it?
As a rule of thumb, a 203(k) loan can be a good idea if you need to renovate your home and you’re unable to qualify for a conventional loan. However, these loans may not be the best fit for every borrower.
Here’s some more information to help you figure out whether an FHA 203(k) loan is the right type of mortgage loan for you
Pros and cons of an FHA 203(k) loan
| You can buy or refinance a home and renovate it with one mortgage You can qualify with much lower credit scores than conventional renovation loans allow You can borrow based on the value of your home after it’s improved | You’ll pay higher mortgage insurance premiums than a conventional renovation mortgage You must finance a home you intend to live in Your loan amount is restricted by FHA loan limits |
Alternatives to a 203(k) loan
If the FHA program doesn’t work for your reno needs, consider one of these fixer-upper loan options:
Fannie Mae HomeStyle renovation loan
If you have at least a 620 credit score and plans for a few luxury items in your renovation project, the Fannie Mae HomeStyle® renovation loan may be worth a look. You’ll only need to put 3% down with this loan.
Freddie Mac CHOICERenovation and CHOICEReno eXPress loan
Freddie Mac offers two renovation loan options that also allow you to put as little as 3% down. The CHOICEReno eXpress® loan is for smaller improvements worth 10% to 15% of your home’s value, while the Freddie Mac CHOICERenovation® loan is for larger projects. However, you’ll need a credit score of 660 to qualify for both of these loans.
VA renovation loan
The U.S. Department of Veterans Affairs (VA) backs VA renovation loans for military service members and their families. Eligible homebuyers may be able to buy a home with no down payment and roll renovation costs into the loan — up to 100% of the home’s after-improved value.
USDA renovation loan
If you’re buying or refinancing a fixer-upper in a rural area of the country, you might be able finance up to 100% of your renovation costs and repairs with the U.S. Department of Agriculture (USDA) renovation loan. Income limits apply, and the repair price tag can’t exceed $35,000.
Frequently asked questions
You may need to shop around for FHA-approved lenders that specialize in the 203(k) loan program. Try the HUD website for a list of lenders that made at least one 203(k) loan in the past year.
No. The FHA 203(k) program is meant for borrowers who plan to live in the home they are financing.
Yes, subject to limitations. However, a contractor must prepare an estimate to verify your expenses are within a reasonable price range, and you can’t be personally reimbursed for your labor costs.