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Hey, smart idea! A fast-tracked 203k loan to address needed repairs when buying. Now how does that work, exactly? We've got all the details below. Also, click me at the bottom of the page when you're ready to get started. Another smart idea!


203k mortgage loans are FHA loans that combine the cost of the home purchase and allowable renovation costs. They’re beneficial to buyers who choose a property that requires rehabbing or updating. There are two versions of the 203k loan; the standard program allows for repairs that include major structural changes and larger repairs or more extensive rehabbing. The Streamline 203k program is better for light remodeling or updates as minor as appliance replacement. The Streamline 203K is popular because it eliminates much of the burdensome paperwork associated with 203K loans, and it simplifies the process for borrowers. Streamline 203K loans are combined with the original loan balance, resulting in one adjustable or fixed rate loan. FHA loan limits change according to updates from HUD and the location of your home. Check the 2022 limits to make sure the program will work for you.

  • Mortgage balance can exceed the purchase price of the property
  • Allows for simple repairs
  • Borrowers’ home inspector or appraiser can create a list of recommended repairs and/or improvements
  • Takes advantage of FHA's 3.5% downpayment and 640+ credit score qualification
  • Allows borrowing up to $35k for allowable work to the home
  • Also allows borrowing to make mortgage payments for up to 6 months
  • Adjustable rate and fixed-rate versions available
  • Borrower must hire licensed general contractors & pros for work
  • Investment properties ineligible, must be owner-occupied
  • Requires FHA MIP
  • Roofs, gutters and downspouts
  • HVAC systems (heating, venting and air conditioning)
  • Plumbing and electrical
  • Minor kitchen and bath remodels
  • Flooring: carpet, tile, wood, etc.
  • Interior and exterior painting
  • New windows and doors
  • Weather stripping & insulation
  • Improvements for persons with disabilities
  • Energy efficient improvements
  • Stabilizing or removing lead-based paint
  • Decks, patios, porches
  • Basement completion and waterproofing
  • Septic or well systems
  • Purchase of new kitchen appliances or washer/dryer
  • No minimum loan balance required
  • Borrowers must occupy the property
  • Property cannot be vacant for more than 30 days
  • Work must be completed within six months
  • Work must be professionally performed
  • If job requires a permit, borrowers must get a permit and DCRA inspection when work is completed
  • Work must commence within 30 days from closing.
  • Landscaping or yard work
  • Major remodeling
  • Moving a load-bearing wall
  • Room additions or add-ons to the home
  • Fixing structural damage
  • Borrowers can select among licensed contractors
  • The lender will review the contractor’s experience, background and referrals
  • Provide  lender with the contractor’s estimate and agreement(s) between the contractor and borrower
  • Borrowers can arrange to do some or all of the work under a “self help” arrangement
  • Do-it-yourself projects require providing the lender with documentation supporting the borrower’s knowledge, experience and ability to perform the necessary work.
  • To be eligible, the property must be a one- to four-family dwelling that has been completed for at least one year
  • The number of units on the site must be acceptable according to the provisions of local zoning requirements
  • All newly constructed units must be attached to the existing dwelling
  • Cooperative units are not eligible
  • Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place In addition to typical home rehabilitation projects, this program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling
  • An existing multi-unit dwelling could be decreased to a one- to four-family unit. An existing house (or modular unit) on another site can be moved onto the mortgaged property; however, release of loan proceeds for the existing structure on the non-mortgaged property is not allowed until the new foundation has been properly inspected and the dwelling has been properly placed and secured to the new foundation
  • A 203(k) mortgage may be originated on a “mixed use” residential property provided: (1) The property has no greater than 25 percent (for a one story building); 33 percent (for a three story building); and 49 percent (for a two story building) of its floor area used for commercial (storefront) purposes; (2) the commercial use will not affect the health and safety of the occupants of the residential property; and (3) the rehabilitation funds will only be used for the residential functions of the dwelling and areas used to access the residential part of the property.
  • 203(k) mortgages can be used for individual units in condominium projects that have been approved by FHA
  • The 203(k) program was not intended to be a project mortgage insurance program, as large scale development has considerably more risk than individual single-family mortgage insurance
  • Condominium rehabilitation is subject to the following conditions: Owner/occupant and qualified non-profit borrowers only; no investors Rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of exteriors or other areas which are the responsibility of the condominium association, except for the installation of firewalls in the attic for the unit Only the lesser of five units per condominium association, or 25 percent of the total number of units, can be undergoing rehabilitation at any one time The maximum mortgage amount cannot exceed 100% of after-improved value After rehabilitation is complete, the individual buildings within the condominium must not contain more than four units.
  • By law, Section 203(k) can only be used to rehabilitate units in one-to-four unit structures. However, this does not mean that the condominium project, as a whole, can only have four units or that all individual structures must be detached. Example: A project might consist of six buildings each containing four units, for a total of 24 units in the project and, thus, be eligible for Section 203(k). Likewise, a project could contain a row of more than four attached townhouses and be eligible for Section 203(k) because HUD considers each townhouse as one structure, provided each unit is separated by a 1 1/2 hour firewall (from foundation up to the roof). Similar to a project with a condominium unit with a mortgage insured under Section 234(c) of the National Housing Act, the condominium project must be approved by HUD prior to the closing of any individual mortgages on the condominium units.

This program can be used to accomplish rehabilitation and/or improvement of an existing one-to-four unit dwelling in one of three ways:

  • To purchase a dwelling and the land on which the dwelling is located and rehabilitate it
  • To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it. To refinance existing liens secured against the subject property and rehabilitate such a dwelling
  • To purchase a dwelling and the land on which the dwelling is located and rehabilitate it, and to refinance existing indebtedness and rehabilitate such a dwelling, the mortgage must be a first lien on the property and the loan proceeds (other than rehabilitation funds) must be available before the rehabilitation begins
  • To purchase a dwelling on another site, move it onto a new foundation and rehabilitate it, the mortgage must be a first lien on the property; however, loan proceeds for the moving of the house cannot be made available until the unit is attached to the new foundation.

All rehabilitation construction and/or additions financed with Section 203(k) mortgage proceeds must comply with the following:

  • Cost Effective Energy Conservation Standards (1) Addition to existing structure. New construction must conform with local codes and HUD Minimum Property Standards in 24 CFR 200.926d
  • Rehabilitation of Existing Structure. To improve the thermal efficiency of the dwelling, the following are required: a) Weatherstrip all doors and windows to reduce infiltration of air when existing weatherstripping is inadequate or nonexistent. b) Caulk or seal all openings, cracks or joints in the building envelope to reduce air infiltration. c) Insulate all openings in exterior walls where the cavity has been exposed as a result of the rehabilitation. Insulate ceiling areas where necessary d) Adequately ventilate attic and crawl space areas. For additional information and requirements, refer to 24 CFR Part 39
  • Replacement Systems. a) Heating, ventilating, and air conditioning system supply and return pipes and ducts must be insulated whenever they run through unconditioned spaces. b) Heating systems, burners, and air conditioning systems must be carefully sized to be no greater than 15 percent oversized for the critical design, heating or cooling, except to satisfy the manufacturer’s next closest nominal size. B. Smoke Detectors. Each sleeping area must be provided with a minimum of one (1) approved, listed and labeled smoke detector installed adjacent to the sleeping area.

The appraiser must provide an opinion of the After-Improved value of the subject property, and in some cases, may be directed by the lender to provide the As-is value. In those cases for which both As-is and After-improved values are required, the valuation analysis may consist of either one or two separate appraisal reports. The number of appraisals depends on the complexity, scope and lender review of the proposed rehabilitation and nature of the work. A. As-is Value. A separate appraisal (Uniform Residential Appraisal Report) may be required to determine the as-is value. However, the lender may determine that an as-is appraisal is not feasible or necessary. In this instance, the lender may use the contract sales price on a purchase transaction, or the existing debt on a refinance transaction, as the as-is value, when this does not exceed a reasonable estimate of value. Further, on a refinance transaction, when a large amount of existing debt (i.e., first and second mortgages) suggests that the borrower has little or no equity in the property, the lender must obtain a current as-is appraisal on which to base the estimated as-is value. On a refinance, the borrower may have substantial equity in the property to assure that no further down payment is required on the new loan amount. In some cases, the borrower will not have an existing mortgage on the property. In this case, the lender should obtain some comparables from a real estate agent/ broker to estimate an approximate as-is value of the property. Another way of establishing the as-is value is to obtain a copy of the local jurisdiction tax valuation on the property. B. Value After Rehabilitation. The expected market value of the property is determined upon completion of the proposed rehabilitation and/or improvements. For a HUD-owned property an as-is appraisal is not required and a DE lender may request the HUD Field Office to release the outstanding HUD Property Disposition appraisal on the property to the lender to establish the maximum mortgage for the property. The HUD appraisal will be considered acceptable for use by the lender if: (1) it is not over one year old prior to bid acceptance from HUD; and (2) the sales contract price plus the cost of rehabilitation does not exceed 110 percent of the “As Repaired Value” shown on the HUD appraisal. If the HUD appraisal is insufficient, the DE Lender may order another appraisal to assure the market value of the property will be adequate to make the purchase of the property feasible. For a HUD-property, down payment for an owner-occupant or non-profit organization is 3.5% of the accepted bid price of the property and 100 percent financing on all other costs.

Home buyers who purchase a property with cash can refinance the property using 203(k) within six (6) months of purchase, the same as if the buyer purchased the property with a 203(k) insured loan to begin with. Evidence of interim financing is not required; the mortgage calculations will be done the same as a purchase transaction. Cash back will be allowed to the borrower in this situation less any down payment and closing cost requirement for the 203(k) loan. A copy of the Sales Contract and the HUD-1 Settlement Statement must be submitted to verify the accepted bid price (as-is value) of the property and the closing date.
The improvements must comply with HUD’s Minimum Property Standards (24 CFR 200.926d and/or HUD Handbook 4905.1) and all local codes and ordinances. The homebuyer may decide to employ an architect or a consultant to prepare the proposal. The home buyer must provide the lender with the appropriate architectural exhibits that clearly show the scope of work to be accomplished. The following list of exhibits are recommended, but may be modified by the local HUD Field Office as required. A Plot Plan of the Site is required only if a new addition is being made to the existing structure. Show the location of the structure(s), walks, drives, streets, and other relevant details. Include finished grade elevations at the property corners and building corners. Show the required flood elevation. B. Proposed Interior Plan of the Dwelling. Show where structural or planning changes are contemplated, including an addition to the dwelling. (An existing plan is no longer required.) C. Work Write-up and Cost Estimate. Any format may be used for these documents, however, quantity and the cost of each item must be shown. Also include a complete description of the work for each item (where necessary). The Rehabilitation Checklist in Appendix 1 of Handbook 4240.4 REV-2should be used to ensure all work items are considered. Transfer the costs to the Draw Request (form HUD-9746-A). Cost estimates must include labor and materials sufficient to complete the work by a contractor. Homebuyers doing their own work cannot eliminate the cost estimate for labor, because if they cannot complete the work there must be sufficient money in the escrow account to get a subcontractor to do the work. The Work Write-up does not need to reflect the color or specific model numbers of appliances, bathroom fixtures, carpeting, etc., unless they are nonstandard units. The consultant who prepares the work write-up and cost estimate (or an architect, engineering or home inspection service) needs to inspect the property to assure: (1) there are no rodents, dryrot, termites and other infestation; (2) there are no defects that will affect the health and safety of the occupants; (3) the adequacy of the existing structural, heating, plumbing, electrical and roofing systems; and (4) the upgrading of thermal protection (where necessary).

This program can be used to accomplish rehabilitation and/or improvement of an existing one-to-four unit dwelling in one of three ways:

  1. The mortgage amount, when added to any other existing indebtedness against the property, cannot exceed the applicable loan-to-value ratio and maximum dollar amount limitations prescribed for similar properties under Section 203(b)
  2. The down payment requirements are the same as under the Section 203(b) program; The Mortgage Payment Reserve is considered a part of the cost of rehabilitation for determining the maximum mortgage amount. Also refer to the requirements for incentives to acquire HUD-owned properties
  3. The form HUD-92700 (Maximum Mortgage Worksheet) must be used to determine the maximum mortgage amount. A. Maximum Mortgage Calculation REFINANCE: Based on the lesser of: 1) The existing debt on the property before rehabilitation, plus the estimated cost of rehabilitation and allowable closing costs or 2) The lesser of the As-Is value plus rehabilitation costs or 110 percent of the After-Improved value multiplied by the appropriate LTV factor. NOTE: If the property was owned less than one year, the acquisition cost plus the documented rehabilitation costs must be used. PURCHASE: The maximum mortgage amount is based on the lesser of 1) or 2) of the below multiplied by the appropriate LTV factor. 1) The as-is value or the purchase price of the property before rehabilitation, whichever is less, plus the estimated cost of rehabilitation or 2) 110 percent of the after-improved value of the property. Principal Residence (Owner-Occupant) & HUD Approved Non-Profit Organization.
  4. For purchases with 203(k) financing: the maximum mortgage amount is to be based upon the HUD estimate of value in 1) or 2) above, less the statutory investment requirement. For refinances under the 203(k) program: the maximum mortgage amount is to be based upon 97/95/90 percent of the HUD estimate of value in 1) or 2) above. B. Cost of Rehabilitation. Expenses eligible to be included in the cost of rehabilitation are materials, labor, contingency reserve, overhead and construction profit, up to six (6) months of mortgage payments, plus expenses related to the rehabilitation such as permits, fees, inspection fees by a qualified home inspector, licenses and consultant and/or architectural/engineering fees. The cost of rehabilitation may also include the supplemental origination fee which the mortgagor is permitted to pay when the mortgage involves insurance of advances, and the discounts which the mortgagor will pay on that portion of the mortgage proceeds allocated to the rehabilitation. C. Exemption of the Market Value Limitation. The 203(k) regulations allow for a waiver request of the market value limitation, which allows the appraiser to go outside the targeted area to obtain the value of comparable properties. Such requests must be forwarded to the Assistant Secretary of Housing-Federal Housing Commissioner at the HUD Headquarters. Requests must include documentation that the following conditions are present: 1) The property is located within an area which is subject to a community sponsored program of concentrated redevelopment or revitalization (See 24 CFR Part 220). 2) The market value loan limitation prevents the use of the program to accomplish rehabilitation in the subject area. 3) The interests of the borrower and the Secretary of HUD are adequately protected. D. Solar Energy Increase. The mortgage is eligible for an increase of up to 20% in the maximum insurable mortgage amount if such an increase is necessary for the installation of solar energy equipment. The solar energy system’s contribution to value will be limited by its replacement cost or by its effect on the value of the dwelling. E. Energy Efficient Mortgage Program. Under the FHA EEM Program, a borrower can finance into the mortgage 100% of the cost of eligible energy efficient improvements, subject to certain dollar limitations, without an appraisal of the energy improvements and without further credit qualification of the borrower. To be eligible for inclusion into the mortgage, the energy efficient improvements must be “cost effective,” i.e., the total cost of the improvements (including maintenance costs) must be less than the total present value of the energy saved over the useful life of the improvements.