What we verified in “FHA 203(k) loan: buy and repair a home with one loan”

Statements and where we checked them

The statements with rules, figures or dates, with the exact place in the source and the date we checked them.

1. According to HUD Handbook 4000.1, in the version issued August 12, 2026, effective dates appear at the end of fourth-level headings, in parentheses, and the section on the 203(k) Rehabilitation Mortgage Insurance Program carries the date 11/10/2026 (November 10, 2026).

   Sources 1 · Handbook 4000.1, transmittal 'Issued: August 12, 2026'; 'Effective Date: Multiple; See Below'; User Quick Guide: 'Effective dates are shown at the end of heading titles, at the 4th level (e.g., I.A.1.a) in parentheses'; II.A.8.a '203(k) Rehabilitation Mortgage Insurance Program (11/10/2026)', p. 390 · Checked October 31, 2026

2. According to HUD Handbook 4000.1, the 203(k) program is used to rehabilitate an existing one- to four-unit structure, to rehabilitate it and refinance its debt, to buy and rehabilitate it, or to rehabilitate the interior of an eligible condominium unit; there are two types: the Standard 203(k), which may be used for remodeling and repairs, with a $5,000 minimum repair cost and a required 203(k) consultant; and the Limited 203(k), only for minor remodeling and nonstructural repairs, with no required consultant and total rehabilitation costs that may not exceed $75,000; that limit is evaluated every year.

   Sources 1 · Handbook 4000.1, II.A.8.a.i, p. 390: 'rehabilitate an existing one- to four-unit Structure'; 'rehabilitate such a Structure and refinance outstanding indebtedness'; 'purchase and rehabilitate a Structure'; 'rehabilitate the interior space of an eligible Condominium Unit'; '(1) Standard 203(k) ... There is a minimum repair cost of $5,000 and the use of a 203(k) Consultant is required'; '(2) Limited 203(k) ... minor remodeling and nonstructural repairs ... does not require the use of a 203(k) Consultant'; 'The total rehabilitation costs must not exceed $75,000'; 'will be evaluated on an annual basis' · Checked October 31, 2026

3. According to Handbook 4000.1, the property must be existing and completed at least one year before the case number assignment date; a property that does not qualify for a regular FHA loan because of health, safety or security issues may qualify under 203(k) if the work corrects them; eligible types include one- to four-unit structures, condominium units, manufactured homes when the work does not affect the structure, mixed-use properties with at least 51% residential area and HUD homes identified as 203(k)-eligible; and investors buying HUD homes cannot use 203(k).

   Sources 1 · Handbook 4000.1, II.A.8.a.iii, pp. 391–392: 'completed for at least one year prior to the case number assignment date'; 'A Property that is not eligible for a 203(b) Mortgage due to health and safety or security issues may be eligible under 203(k)'; 'a one- to four-unit Single Family Structure, including a Condominium Unit'; 'Manufactured Housing where the rehabilitation does not affect the structural components'; '51 percent of the Gross Building Area (GBA) is for residential use'; 'a HUD Real Estate Owned (REO) Property'; 'Investor purchases of HUD REO Properties are not eligible for 203(k) financing' · Checked October 31, 2026

4. According to Handbook 4000.1, the Standard 203(k) requires at least $5,000 in eligible improvements, for example: converting a one-family home to one with an accessory dwelling unit (ADU) or to two to four units; repairing, rebuilding or elevating the foundation; repairing structural damage, building additions and finishing attics or basements; eliminating health and safety hazards; repairing or replacing plumbing, heating, air conditioning and electrical systems; roofing; energy conservation improvements; accessibility for persons with disabilities; new kitchen appliances and a washer/dryer; and lead-based paint stabilization in homes built before 1978; all improvements must meet HUD's minimum requirements and local building codes.

   Sources 1 · Handbook 4000.1, II.A.8.a.vi(A), pp. 394–395: 'The Standard 203(k) requires a minimum of $5,000 in eligible improvements'; 'converting a one-family Structure to a one-family Structure with an ADU, two-, three-, or four-family Structure'; 'repairing, reconstructing, or elevating an existing foundation'; 'making structural alterations'; 'eliminating health and safety hazards'; 'repairing/replacing plumbing, heating, AC, and electrical systems'; 'making energy conservation improvements'; 'creating accessibility for persons with disabilities'; 'installing a new refrigerator, cooktop, oven, dishwasher, built-in microwave oven, and washer/dryer'; 'lead-based paint stabilization costs, if the Structure was built before 1978'; '(2)(a) All improvements to existing Structures must comply with HUD's MPR and meet or exceed local building codes' · Checked October 31, 2026

5. According to Handbook 4000.1, 203(k) money cannot pay for luxury items, improvements that do not become a permanent part of the property or improvements only for commercial use, such as new swimming pools (an existing in-ground pool can be repaired), exterior hot tubs or saunas, barbecue pits or outdoor fireplaces, tennis courts, satellite dishes, photo murals or gazebos.

   Sources 1 · Handbook 4000.1, II.A.8.a.vi(B), p. 396: 'may not be used to finance costs associated with the purchase or repair of any luxury item, any improvement that does not become a permanent part of the subject Property, or improvements that solely benefit commercial functions'; 'swimming pools (existing in-ground swimming pools can be repaired)'; 'an exterior hot tub, spa, whirlpool bath, or sauna'; 'barbecue pits, outdoor fireplaces or hearths'; 'tennis courts'; 'satellite dishes'; 'photo murals'; 'gazebos' · Checked October 31, 2026

6. According to Handbook 4000.1, with a Standard 203(k) the lender picks an FHA-approved 203(k) consultant from FHA's roster; the consultant inspects the property and prepares the Work Write-Up, with each repair and its specifications, and the cost estimate for each one; before closing, the lender must confirm that a qualified contractor was hired and agreed by contract to do that work for that cost and within that time, checking credentials, experience, references, licensing and bonding; and if you do part of the work yourself, you cannot be reimbursed for your labor.

   Sources 1 · Handbook 4000.1, II.A.8.a.vi(C) and (H)(1), pp. 396–399: 'The Mortgagee must select an FHA-approved 203(k) Consultant from the FHA 203(k) Consultant Roster'; 'The Consultant must inspect the Property and prepare the Work Write-Up and Cost Estimate'; 'identifies each Work Item to be performed and the specifications'; 'The Borrower must not be reimbursed for labor costs'; 'a qualified general or specialized contractor has been hired and, by contract, has agreed to complete the work described in the Work Write-Up for the amount of the Cost Estimate and within the allotted time frame'; 'credentials, work experience and client references'; 'licensing and bonding requirements' · Checked October 31, 2026

7. According to Handbook 4000.1, in a Standard 203(k) the contingency reserve is money set aside for unforeseen costs, set as a percentage of the repair costs: in structures under 30 years old it is required (10% to 20%) when there is termite damage and otherwise optional up to 20%; in structures 30 years or older it is required at 10% to 20%, or 15% to 20% if the utilities are not working; you may put up that money yourself; and the lender may include a reserve to pay up to 12 months of mortgage payments while the home cannot be lived in.

   Sources 1 · Handbook 4000.1, II.A.8.a.vi(E)–(F), pp. 397–398: 'Contingency Reserve refers to funds that are set aside to cover unforeseen project costs'; 'For Structures with an actual age of less than 30 years: Required when evidence of termite damage 10% 20%; Discretionary No Minimum 20%'; 'For Structures with an actual age of 30 years or more: Required 10% 20%; Required when utilities are not operable ... 15% 20%'; 'The Borrower may provide their own funds'; 'A Mortgagee may establish a financeable Mortgage Payment Reserve, not to exceed 12 months of Mortgage Payments' · Checked October 31, 2026

8. According to Handbook 4000.1, the Limited 203(k) cannot pay for major rehabilitation or remodeling; FHA considers a repair major if it is expected to take more than nine months, needs more than four draws per contractor, needs a consultant or plans because of repairs from the appraisal, or keeps you from living in the home for more than 30 days in total; it also does not pay for, among other things, converting to more units, foundation work, structural changes or room additions, landscaping or luxury items; it does pay for, for example, plumbing, heating and electrical systems, roofing that does not affect the structure, energy conservation, accessibility and kitchen appliances.

   Sources 1 · Handbook 4000.1, II.A.8.a.vii(A)–(B), pp. 399–401: 'The Limited 203(k) may only be used for minor remodeling and nonstructural repairs'; 'expected to require more than nine months to complete'; 'require more than four draws per contractor'; 'necessitate a Consultant to develop a specification of repairs/Work Write-Up'; 'require plans or architectural exhibits'; 'prevents the Borrower from occupying the Property for more than a total of 30 Days'; 'repairing, reconstructing or elevating an existing foundation'; 'room additions'; 'landscaping and site improvements'; 'repairing/replacing plumbing, heating, AC, and electrical systems'; 'making energy conservation improvements' · Checked October 31, 2026

9. According to Handbook 4000.1, with a Limited 203(k) you give the lender a work plan, which you can write yourself or with help from a contractor or consultant, in no required format; you use one or more contractors, licensed and bonded if your locality requires it, who provide a written proposal and a cost estimate for each repair, broken down by labor and materials, stating which items need permits and that the repairs are nonstructural; and the lender checks that the prices are within the usual range and may ask for more estimates.

   Sources 1 · Handbook 4000.1, II.A.8.a.vii(C) and (H), pp. 401–404: 'The Borrower must submit a Work Plan to the Mortgagee and use one or more contractors'; 'The contractors must be licensed and bonded if required by the local jurisdiction'; 'determine if they fall within the usual and customary range'; 'The Mortgagee may require the Borrower to provide additional Cost Estimates'; 'The Borrower may develop the work plan themselves or engage an outside party'; 'There is no required format for the work plan'; 'The written proposal must indicate Work Items that require permits and state that repairs are nonstructural'; 'broken down by labor and materials' · Checked October 31, 2026

10. According to Handbook 4000.1, the lender must give you form HUD-92700-A, 203(k) Borrower's Acknowledgement; and with both types of 203(k), the purchase contract must say you applied for 203(k) financing and that the purchase depends on loan approval and on your acceptance of any additional improvements the lender requires.

    Sources 1 · Handbook 4000.1, II.A.8.a.iv, p. 393: 'The Mortgagee must provide the Borrower with the form HUD-92700-A, 203(k) Borrower's Acknowledgement'; vi(H)(4) and vii(H)(3): 'the sales contract includes a provision that the Borrower has applied for Section 203(k) financing, and that the contract is contingent upon mortgage approval and the Borrower's acceptance of additional required improvements as determined by the Mortgagee' · Checked October 31, 2026

11. According to Handbook 4000.1, the lender must establish both an adjusted as-is value and an after-improved value; an appraisal by an FHA roster appraiser is always required for the after-improved value; in a purchase, the adjusted as-is value is the lesser of the price minus inducements and the as-is appraised value, if one was ordered; and the maximum loan on a purchase is the lesser of the applicable loan-to-value ratio times the lesser of two amounts (the adjusted as-is value plus the financeable repair costs, fees and reserves, or 110% of the after-improved value, 100% for condominiums) and FHA's mortgage limits.

    Sources 1 · Handbook 4000.1, II.A.8.a.viii(A), p. 404: 'The Mortgagee must establish both an Adjusted As-Is Value and an After Improved Value'; 'An appraisal by an FHA Roster Appraiser is always required to establish the After Improved Value'; '(a) Purchase Transactions ... the lesser of: the purchase price less any inducements to purchase; or the As-Is Property Value'; ix, p. 406: 'The maximum mortgage amount that FHA will insure on a 203(k) purchase is the lesser of'; '110 percent of the After Improved Value (100 percent for condominiums)'; 'the Nationwide Mortgage Limits' · Checked October 31, 2026

12. According to Handbook 4000.1, the time to finish the repairs may not exceed 12 months for a Standard 203(k) or nine months for a Limited; it starts when the loan is funded; if the work is not finished on time you may ask for an extension with documents, and the lender may grant it only if your payments are current or you are following a forbearance plan; the lender may treat the loan as in default if work does not start within 30 days of disbursement, stops for more than 30 days in a row or is not finished on time; and if you are not behind on payments, unused rehabilitation money is applied to the loan balance.

    Sources 1 · Handbook 4000.1, II.A.8.a.xv(C)(1), p. 414: 'time frame for completion of repairs not to exceed 12 months'; 'not to exceed nine months'; xvii(A)–(C), pp. 414–415: 'The rehabilitation period starts when the Mortgage is funded'; 'the Borrower may request an extension of time'; 'only if the Mortgage Payments are current or the Borrower is complying with the terms of the forbearance'; 'has not started within 30 Days of the Disbursement Date'; 'ceases for more than 30 consecutive Days'; 'the Mortgagee must apply any unused rehabilitation funds toward the principal amount' · Checked October 31, 2026

13. According to Handbook 4000.1, at closing the rehabilitation money, including the contingency reserve, goes into an interest-bearing escrow account, and the interest belongs to you; the lender releases money only for finished work that meets laws and codes, with permits and inspections; it gets lien waivers; it holds back 10% of each draw, with exceptions; it releases the money within five business days of a complete request; and it makes checks payable to you and the contractor together, unless you authorize in writing paying the contractor directly.

    Sources 1 · Handbook 4000.1, II.A.8.a.xviii, pp. 416–419: 'place all proceeds designated for the rehabilitation, including the Contingency Reserve ... in an interest-bearing escrow account'; 'must pay the net income earned by the rehabilitation escrow account to the Borrower'; 'The Mortgagee may release funds only when repairs and improvements per the draw request ... meet all federal, state, and local laws, codes and ordinances, including any required permits and inspections'; 'Lien Waiver'; '(c) The Mortgagee must hold back 10 percent of each draw request'; '(d) ... within five business days after receipt of a properly executed draw request'; 'must issue checks to both the Borrower and contractors as co-payees, unless the Borrower provides written authorization' · Checked October 31, 2026

14. According to Handbook 4000.1, with a Standard 203(k) the lender may approve up to five draw requests (four intermediate and one final), each of which may include several disbursements; with a Limited 203(k), up to four per contractor (the initial draw at closing, no more than two intermediate draws and the final one), each with up to two disbursements; if total Limited repair costs are $15,000 or less, contractor receipts or your signed letter of completion are enough, and above $15,000 the lender must perform or order an inspection.

    Sources 1 · Handbook 4000.1, II.A.8.a.xviii(C)(1)(d)(i)–(ii), pp. 419–420: 'The Mortgagee may approve a maximum of five draw requests (four intermediate and one final)'; 'Each draw may include multiple disbursements'; 'a maximum of four draw requests per contractor or the Borrower (if acting as the contractor)'; 'the initial draw at closing, no more than two intermediate draws during the rehabilitation process, and release of the final draw'; 'up to two separate disbursements'; 'Total Repair Costs Less Than or Equal to $15,000 ... contractor's receipts or a signed Borrower's Letter of Completion'; 'Total Repair Costs Exceeding $15,000 ... performing an inspection or by obtaining an inspection by a third party' · Checked October 31, 2026

15. According to HUD Mortgagee Letter 2026-06, dated June 23, 2026 and effective immediately, FHA raised the maximum number of Limited 203(k) draws to four per contractor because the earlier two-draw limit did not fit the higher costs now allowed; the letter notes that ML 2024-13 (July 9, 2024) raised the Limited maximum from $35,000 to $75,000 and the time limit from six to nine months; and it did not change the number of Standard draws, but clarified that each may include several disbursements.

    Sources 2 · Mortgagee Letter 2026-06 (June 23, 2026): 'Effective Date The provisions of this ML are effective immediately'; 'On July 9, 2024, FHA increased the maximum rehabilitation amount under the Limited 203(k) program from $35,000 to $75,000 and extended the rehabilitation period from six months to nine months through ML 2024-13'; 'the two-draw limit does not align with the higher total rehabilitation costs'; 'allow a maximum of four draws per contractor'; 'While FHA has not increased the number of allowable draws under the Standard 203(k) program, FHA is clarifying that multiple disbursements per draw are allowed' · Checked October 31, 2026

16. According to Handbook 4000.1, a 203(k) may be combined with an Energy Efficient Mortgage (EEM); the cost of those improvements is calculated separately; the base loan may not exceed 110% of the after-improved value (100% for condominiums); and with a Limited 203(k), energy improvement costs may be added on top of the $75,000 limit.

    Sources 1 · Handbook 4000.1, II.A.8.a.i(B), p. 391: 'Energy Efficient Mortgages'; xi, p. 407: 'The Mortgagee must calculate the maximum mortgage amount without factoring in the cost of Energy Efficient Mortgage (EEM) items'; 'The Base Loan Amount may not exceed 110 percent of the After Improved Value of the Property (100 percent for condominiums)'; 'For Limited 203(k) transactions, the costs for energy improvements can be in addition to the $75,000 limit on total rehabilitation costs' · Checked October 31, 2026

17. According to the CFPB, the counseling agencies on its list are approved by HUD and can offer independent advice about whether a set of mortgage loan terms fits your goals and situation, often at little or no cost.

    Sources 3 · Find a housing counselor: 'approved by the U.S. Department of Housing and Urban Development (HUD), and they can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, often at little or no cost to you' · Checked October 31, 2026