FHA 203(k) loan: buy and repair a home with one loan

Many homes people can afford need work: an old roof, a furnace that does not run or a kitchen with no appliances. The problem is that a regular loan pays for the home but not the work. The FHA 203(k) loan puts both together: one FHA loanFHA loanAn FHA loan is a mortgage made by a private lender and insured by the Federal Housing Administration (FHA), an agency of the U.S. government. That insurance protects the lender if you stop paying, which is why the lender can accept a lower down payment and a less-than-perfect credit history than on a conventional loan. Federal law sets the minimum cash investment at 3.5% of the property's value and caps the loan amount at the FHA limit, which changes by county. In exchange for the insurance you pay a mortgage insurance premium.See the full definitionClose that pays for the purchase (or refinance) and the repairs.¹ This guide explains the two types, what each pays for, how the repair money is handled and which dates on HUD’s rules you should know.

The minimum in repairs for a Standard 203(k)

$5,000¹

The most in rehabilitation costs for a Limited 203(k)

$75,000¹

The longest the work can take on the Standard and on the Limited

12 and 9 months¹

What a 203(k) is for

According to HUD, a 203(k) can be used to:¹

• Buy and repair a one- to four-unit home.
• Repair the home you already own and refinance what you owe.
• Repair the interior of a condominium unit, not the areas the association is responsible for.

The home must have been completed at least one year before the lender asks for the case number. And here is a big advantage: a home that does not qualify for a regular FHA loan because of health or safety problems can qualify with a 203(k) if the work fixes those problems.¹ It also works for manufactured homes when the work does not touch their structure, for mixed-use properties with at least 51% living area and for HUD homes marked as eligible. If you buy one of the HUD homes, check that it is marked as 203(k)-eligible; investors cannot use it for those homes.¹

Standard or Limited: which one fits

There are two types of 203(k). The main difference is the size of the project:¹¹

The two types of 203(k)

Big projects

Standard 203(k)

• From $5,000 in repairs
• Can include structural changes, foundations and additions
• Needs an FHA-approved 203(k) consultant
• Up to 12 months of work and up to five draws

Smaller fixes

Limited 203(k)

• Up to $75,000 in rehabilitation costs
• Nonstructural repairs only
• No required consultant, though you can use one
• Up to nine months of work and four draws per contractor

If the work touches the structure or the foundation or adds rooms, it is Standard.

What the Standard pays for. Almost anything that makes the home safe, usable and up to date: foundation and structural repairs, turning the home into one with an accessory dwelling unit (ADU)accessory dwelling unit (ADU)An accessory dwelling unit (ADU) is a living space, separate from the main house, on the same lot. It can be attached to the house, inside it or detached. According to Fannie Mae, it must have its own entrance, kitchen, sleeping area and bathroom, and be smaller than the main house. If it can only be reached through the main house, or it is open to it with no privacy, it does not count as an ADU. A second kitchen alone does not make one either. Fannie Mae allows only one per lot, and not with a two- to four-unit home.See the full definitionClose or into two to four units, finishing an attic or basement, plumbing, heating, air and electrical, roofing, energy savings, accessibility for a person with a disability and new kitchen appliances. Everything must meet HUD’s minimum requirements and local codes.¹ If the home was built before 1978, it can also pay for lead-based paint stabilization; the guide on lead, mold and pests explains that risk.

What neither one pays for. Luxuries and things that are not permanent: new pools, exterior hot tubs or saunas, barbecue pits, tennis courts, satellite dishes or gazebos. An existing pool can be repaired or removed.¹

When the Limited falls short. FHA treats as “major” work that takes more than nine months, needs more than four draws per contractor, requires a consultant or plans, or keeps you out of the home for more than 30 days in total. It also does not pay for room additions, foundations or landscaping. If your project falls there, you need the Standard.¹

The consultant, the contractor and the work plan

With the Standard, your lender picks a 203(k) consultant from FHA’s roster. The consultant inspects the home and writes up the work, repair by repair, with its cost. Before closing, the lender confirms you hired a qualified contractor who signed on to do that work, for that price and within that time. To do that, it checks the contractor’s experience, references, licenses and bonding.¹

With the Limited, you provide the work plan. You can write it yourself or with help from a contractor or consultant, in no special format. Each contractor gives you a written proposal with the cost of each job, split into labor and materials, and it must say which jobs need a building permitbuilding permitA building permit is the approval a local government gives to start a construction project. Not every area of the country requires one. If you renovate with an FHA 203(k) loan, the program requires all building permits to be obtained before work starts and posted on site. Freddie Mac also recommends working with your contractor to get any permits you need before a renovation begins.See the full definitionClose and that the repairs are nonstructural. The lender checks that the prices are normal and may ask for more estimates.¹

If you do part of the work yourself, you can sign a self-help agreement, but you are not paid for your labor.¹

The contract, the appraisal and how much you can borrow

The purchase contract. It must say you applied for a 203(k) and that the purchase depends on loan approval and on your accepting any extra improvements the lender asks for. The lender also gives you form HUD-92700-A, which explains your responsibilities.¹

The appraisalhome appraisalAn appraisal is a written document that gives a professional appraiser's opinion of how much a property is worth. The lender orders it before approving the mortgage, because the home is the loan's collateral and the lender does not want to lend more than it is worth. If the appraisal comes in below the price you agreed, the bank bases the loan on the lower value and you will have to cover the difference, renegotiate the price or walk away if your contract allows it. An appraisal is not an inspection: it measures value, not the home's condition.See the full definitionClose. You always need an appraisal by an FHA roster appraiser that says what the home will be worth after the improvements. The lender also works out the home’s as-is value; in a purchase, that is the lesser of the price (minus seller inducements) and the as-is appraised value, if one was ordered.¹

The maximum loan. On a purchase, FHA insures the lesser of these amounts: FHA’s loan-to-value ratio applied to the lesser of the as-is value plus the cost of the work and 110% of the after-improved value (100% for condominiums), or FHA’s mortgage limits.¹ If the work costs more than it raises the home’s value, the loan may fall short. The guide on what happens if the appraisal comes in low explains the options.

The Standard’s reserves. Depending on the home’s age, the loan includes a contingency reserve for surprises, 10% to 20% of the cost of the work; it is required in homes 30 years or older, and in newer homes with termite damage. It can also include up to 12 months of mortgage payments if you cannot live in the home during the work.¹

Example with real numbers

A home over 30 years old with an old roof and plumbing

An example in words, not a real case, of how a Standard 203(k) comes together.

The home

It is over 30 years old, so the contingency reserve is required

The work

Roof, plumbing and kitchen; the consultant writes up the work and its cost

The reserve

Between 10% and 20% of the cost of the work, for surprises

If they cannot live there

The loan can include up to 12 months of mortgage payments

The deadline

Up to 12 months to finish, from when the loan is funded

The rules in the example come from HUD Handbook 4000.1.¹¹ Work out your monthly payment with your own numbers.

Run it with your numbersMortgage calculator

How the work gets paid: the account and the draws

At closing, the repair money is not handed to you. It goes into an interest-bearing escrowescrow accountAn escrow account is an account set up by your mortgage lender to pay certain property-related expenses on your behalf, mainly property taxes and homeowners insurance. The money comes from a portion of your monthly mortgage payment: each month you contribute a share and the loan servicer pays the bills when they come due. That is why your payment is higher than principal and interest alone, and why it can change when taxes or the insurance premium go up. In some states the word also names the period between the offer and the closing.See the full definitionClose account, and the interest is yours. The lender pays only for finished work that meets the codes, with its permits and inspections, and gets lien waiverslien waiverA lien waiver is a document in which a contractor, subcontractor or materials supplier states that it has been paid and gives up its right to place a lien on your home to collect for that work. The CFPB recommends asking your contractors for one at the start and at each stage of a repair. In Texas, the law says a waiver is valid only if it substantially follows one of the official forms and is signed by the person claiming payment. A conditional waiver takes effect when the bank pays the check, and no one may require an unconditional waiver without having paid that amount.See the full definitionClose so no one can claim the home for unpaid work. It holds back 10% of each payment until the end, releases the money within five business days and makes the checks out to you and the contractor together, unless you authorize in writing paying the contractor directly.¹

How many draws. On the Standard, up to five: four intermediate and one final. On the Limited, up to four per contractor: the initial one at closing, no more than two intermediate and the final one. If the Limited work costs $15,000 or less, receipts or your letter that it is finished are enough; above that, an inspection is needed.¹

What changed in 2026. The Limited used to allow only two draws. Mortgagee Letter 2026-06, dated June 23, 2026 and effective immediately, raised it to four per contractor. The same letter notes that in 2024 the Limited maximum rose from $35,000 to $75,000 and the time limit from six to nine months.²

The deadline for the work. It starts when the loan is funded: up to 12 months on the Standard and nine on the Limited. Work must start within 30 days and cannot stop for more than 30 days in a row; otherwise the lender can treat the loan as in default. If you need more time, ask for an extension with documents; you get it only if your payments are current. If repair money is left over and you are not behind, it goes to your balance.¹

From the plan to finished work

1. 1. Find a lender that does 203(k) loans

   Before you make an offer

   Ask whether it offers the Standard, the Limited or both, and what it charges.¹

2. 2. Add the 203(k) clause to the contract

   When you make the offer

   The purchase must depend on loan approval and on your accepting the improvements.¹

3. 3. Put together the plan and the estimates

   Before the appraisal

   With a consultant on the Standard, or with your plan and contractors' proposals on the Limited.¹

4. 4. Wait for the after-improved appraisal

   During approval

   It decides how much you can borrow.¹

5. 5. Start the work on time

   Within 30 days of closing

   If work stops for more than 30 days in a row, the loan can go into default.¹

6. 6. Request each draw for finished work

   During the project

   The lender holds back 10% of each payment until the end.¹

If this is you

You found a cheap home that needs a lot

If it has safety problems that keep it out of regular FHA, a 203(k) can fix them.¹

You want a room or a unit for your parents

Adding an ADU or converting the home into more units is Standard work, not Limited.¹

You need ramps or an accessible bathroom

Accessibility for persons with disabilities is among the improvements a 203(k) pays for.¹

You already own a home and want to fix it

A 203(k) can also repair the home and refinance what you owe.¹

You plan to do part of the work yourself

You can, with a self-help agreement, but the loan pays only for materials.¹

Costly mistakes

• Mistake: Choosing the Limited for work that touches the structure.

  Instead: Foundations, additions and structural changes belong to the Standard.¹

• Mistake: Paying the contractor up front outside the account.

  Instead: The loan pays only for finished work, with 10% held back until the end.¹

• Mistake: Letting the work stop for a month or more.

  Instead: If it stops for more than 30 days in a row, the lender can treat the loan as in default.¹

• Mistake: Falling behind on the mortgage during the work.

  Instead: Without current payments, the lender cannot give you a deadline extension.¹

• Mistake: Planning a new pool or hot tub with the loan.

  Instead: HUD does not pay for luxuries; focus on safety, systems and what adds value.¹

Free help and other options

A HUD-approved housing counselorHUD-approved housing counselorA HUD-approved housing counselor works at an agency HUD has approved to provide housing counseling: independent, expert advice customized to your situation about buying a home, renting, a missed mortgage payment, a foreclosure or credit problems. The agencies usually charge little or nothing; many serve in Spanish and offer the homebuyer education course several assistance programs require. They are not lenders or real estate agents and sell you nothing. Your county page lists the official agencies with phone numbers.See the full definitionClose can go over whether a 203(k) makes sense for you and compare lenders’ offers, often for free or at low cost.³ The guide to HUD-approved housing counselors explains how to find one. If your goal is to lower your power and gas bills, a 203(k) can be combined with an energy efficient mortgage, and on the Limited those improvements can go on top of the $75,000 limit.¹ The energy efficient mortgages guide explains it. And to see what you would pay each month, use the mortgage calculator.

What to do this week

1. Ask two or three lenders whether they do Standard 203(k), Limited 203(k) or both.¹
2. Make a list of the repairs and mark which ones touch the structure.¹
3. Get written proposals from licensed contractors, with labor and materials listed separately.¹
4. Check with your agent that the contract has the 203(k) clause.¹
5. Ask your lender which version of FHA’s handbook applies to your loan.¹