FHA 203(k) Loan – The Loan You Need to Buy and Repair a Home

When you buy a home, you usually pay for repairs along the way, and buyers who want to take on a real fixer-upper should be open to the idea of facing many projects in the future before their houses really become their dream homes.

If this is the case for you, you may be considering an FHA 203(k) loan or, as it’s also called, a mortgage rehab loan or Section 203(k) loan. This combines the financing for the home’s purchase and the remodeling or repairs into one loan.

Sounds interesting? Then read on to learn more about the FHA 203(k) loan as one of the best mortgage lenders in California shares information on this topic:

What’s an FHA 203(k) Loan?

This is a loan offered by FHA-approved lenders to qualified borrowers. It allows you to buy a home, as well as finance its rehabilitation or remodeling. The loan amount is the purchase price plus the estimated cost of the repairs and improvements. Or in other words, it is the costs to buy, repair, and sell the property, in other words, the value of the home after renovation.

In a 203(k) loan, you let the lender know your plans for renovations to the property before you close on the purchase. The lender will then allow you to use the loan amount as funds for renovations and improvements to the property.

The Federal Housing Administration backs the 203(k) loan.

How Does It Work?

When you are looking to purchase a home, the lender will lend you 85% of the purchase price plus the cost of the repairs and renovations. The remaining 15% of the price will be paid by you.

In most cases, you will be allowed to borrow 100% of the home’s purchase price. However, keep in mind that the total loan amount, including the house’s replacement cost, may not exceed the maximum purchase price.

For a $150,000 home, you can borrow up to $135,100 from the 203(k) loan. Any remaining amount will be paid by you.

Two Types of FHA 203(k) Loans

There are two types of 203(k) loans:

Standard: This is the basic 203(k) loan. It allows you to include the cost of the improvements and repairs up to 50% of the home’s appraised value.

Standard Plus: This is a variation of the standard 203(k) loan. It allows you to include costs for improvements and repairs up to 60% of the property’s appraised value.

Repairs and Projects Accepted for FHA 203(k) Loans

The FHA 203(k) loan allows you to finance a variety of repairs and improvements. The following are examples of repairs and improvements that can be included in the loan amount:

  • Repairing, remodeling, or building an addition onto a home
  • Repairing or replacing the roof
  • Repairing or replacing the plumbing system
  • Repairing or replacing the electrical system
  • Repairing or replacing the HVAC system

Other repairs and improvements that do not permanently change the character of the property


You can use a 203(k) loan to finance various renovations, improvements, and repairs to your home. But keep in mind that remodeling projects that reduce the property’s value, such as a swimming pool or tennis court, may not be eligible for a 203(k) loan.

The FHA 203(k) loan is an excellent option for buyers who want to purchase a home and make necessary repairs and improvements in one transaction. If this is something you are interested in, contact a trusted local mortgage lender to know more about what you need to apply for one.

Hawkins Home Loans is one of the best mortgage lenders in West Sacramento, California. Contact us today to learn more about our loans!