203K Loans

What is a 203K loan?

The 203K loan is a type of loan insured by the Federal Housing Administration and provided by a private lender. The FHA 203K loan allows homeowners to purchase a home that needs to be repaired. The loan provides the money for both the cost of the home and repair costs. Any repairs done on the property will be tracked by lenders and any professionals who work on the property will have to be approved. The work on a property should be done only by licensed professionals and not the homeowners. Even with the 203K loan, houses cannot be too run down or they will not be approved by the FHA. This loan is best for someone who doesn’t mind coordinating projects and is looking forward to planning renovations and living in a rejuvenated space.

203K Loan Requirements

Who qualifies for a 203K loan?

Being government-backed, there is less risk involved for private lenders with 203K loans, and  requirements are not as strict. Still, the 203K renovation loan will require you to have a credit score of at least 640. This makes 203K loans not quite as easy to get as FHA loans, though both are guaranteed by the same federal administration. 203K loans are available to anyone who meets the loan qualifications, even first-time home buyers. The maximum debt to income ratio for this type of loan is the same as an FHA loan as well. Usually, those who have had a foreclosure in the last three years will not be approved.

Benefits of 203K Mortgages

Unlike other loans, the 203K loan allows you to borrow up to 110% of the value of a property. The extra 10% is for any repairs that need to be done by licensed professionals because all repair funds are included within the loan. It’s like combining two loans into one. The 203K loan has a minimal down payment of only 3.5% for both the house and repair costs. 203K loan rates are usually low and so are the income requirements. In short, this loan is a simple option for both buying a home and getting the money needed to repair it.

Disadvantages of FHA 203K Mortgages

203K loans can’t be used just to fix up a home and resell it for profit. You must live on the property during the repairs or move in soon after. The property must be your primary residence and the loan cannot be used to purchase any sort of investment property. Requiring applicants have a higher credit score, 203K loans are not as easy to be approved for as an FHA loan. Still, you have to pay FHA mortgage insurance regardless of how much your down payment is. This insurance includes an upfront premium and added monthly premiums. If you were hoping to work on a fun house project yourself to save on cost, the loan will not cover it. The work is meant to be done by professionals, inspected by the FHA, and isn’t supposed to be done on your own.

Applying for a 203K Mortgage Loan

The first step in applying is to find a 203K approved lender and fill out an application. Applying for a 203K loan will take paperwork, documentation, reviewing, and an appraisal just like any other loan. The next steps are what other loans don’t cover. You must choose contractors that are approved by the FHA and get detailed, itemized estimates on the home repair costs. It is best to use a contractor that has already gone through this process before, as it is very different from the usual way contractors operate. Next, you are approved for the loan and close on it. The contractors will complete any repairs within the next 6 months. You are required to move in soon after the home is finished.


If you’re interested in a 203K loan or any other types of home loans,  then Brian your local mortgage lender can answer questions and help you choose which loan is best for you. Call 706-973-7933 to discuss your options or get started pursuing a 203K loan today.

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