Skip to Content
Mortgage Research Center, LLC: Not affiliated or endorsed by the Dept. of HUD or any govt. agency. NMLS #1907. Not available in NY. Legal

The standard FHA 203(k) loan, also referred to as the renovation or rehab loan is a great option when looking to fund your home improvement project. There are two types of 203(k) loans: standard and limited. The standard loan is better for large projects, while the limited loan is better for minor repairs and renovations.

For those looking to make some big home improvements, continue reading to see if the standard 203(k) loan is the best option for you.

FHA 203(k) Loan Process

There is a fair amount of steps when using an FHA 203(k) loan:

  1. Apply for the loan
  2. Get approved by a lender
  3. Choose a consultant
  4. Find a contractor
  5. Get a bid from the contractor
  6. Close the loan
  7. Do repairs and renovations
  8. Move-in

203k Eligibility

Typically speaking the borrower's credit score should be above 580. However, this depends on the lender and can sometimes be as high as 620 or 640. The borrower will need to be able to put 3.5 percent down on the home cost plus the loan amount. For example:

Home cost: $400,000
Loan cost: $50,000
Downpayment: $15,750

Keep in mind that if the borrower's credit score is below 580 the downpayment may be higher.

Standard FHA 203(k) Loan Guidelines

While using the standard loan there is no real loan limit so long as it is above $35,000. If the amount needed is below $35,000 you will need to use a limited FHA 203(k) loan.

All repairs and renovations done on the home must be completed within 6 months of closing the loan, and you may or may not need to stay somewhere else depending on the extent of the repairs.

The standard FHA 203(k) loan cannot be used for non-permanent changes or luxury additions such as a pool or minor landscaping. Some eligible activities approved by the HUD include:

  • structural alterations and reconstruction
  • modernization and improvements to the home's function
  • elimination of health and safety hazards
  • changes that improve the appearance and eliminate obsolescence
  • reconditioning or replacing plumbing; installing a well and/or septic system
  • adding or replacing roofing, gutters, and downspouts
  • adding or replacing floors and/or floor treatments
  • major landscape work and site improvements
  • enhancing accessibility for a disabled person
  • making energy conservation improvements

FHA Standard 203(k) Payments and Project Management

The HUD requires all borrowers to have a consultant to manage the project and ensure the work is done properly. Consultants are there to make sure the funds are properly spent to protect the borrower's and lender's interest.

The payments for standard FHA 203(k) loans is done is draws. After each stage of the renovation plan is complete the borrower must call and request a draw to pay the contractor.

In conclusion, the standard FHA 203(k) loan is ideal for those looking to make some pretty big repairs and renovations. There is no set loan limit for standard loans so long as the total cost of repairs exceeds $35,000. Payments are done in draws, and a consultant is there to make sure everything is done and in a timely matter.