Borrowers Home  /  FHA 203(k) Loans

What is an FHA 203(k) Loan?

Renovate, Remodel, or Upgrade with a FHA 203(k) Loan. Learn MoreWhile the idea of purchasing a fixer-upper and transforming it into a dream home may seem like a great concept, the reality can be harsh once buyers realize the true cost of a home remodel. Unfortunately, many homeowners give up on the idea of creating their dream home one renovation at a time because they automatically assume they can’t afford it. That’s where an FHA 203(k) loan comes in.

If you plan to purchase a fixer-upper or need to make improvements to your existing home, an FHA 203(k) loan may be the perfect rehab loan for you. By combining a construction loan with your home mortgage, an FHA 203(k) loan limits your loan closing costs because it’s just one loan and simplifies the home renovation process. FHA 203(k) loans are backed by the federal government, and are typically given to buyers who want to purchase a home and perform upgrades, repairs, remodel or customize to their needs and wants.

Prospect Mortgage has a nationwide team of 203(k) specialists who are helping buyers just like you take advantage of the opportunities supported by this program, including:

  • Those interested in purchasing a fixer-upper home that’s in need of upgrades, repairs, or larger renovation projects, even if the home is being sold “as is”.
  • Those who are purchasing a foreclosed property from banks, housing agencies, and government-sponsored enterprises, as well as short-sale properties.

Homeowners who would like to refinance with today’s low rates and get the funds they’ll need to transform their current home into their dream home.

FHA 203(k) Loan Overview

The Federal Housing Administration (FHA) administers the FHA 203(k) loan program, which makes it possible for buyers to purchase a property with the cost of repairs and improvements included in the loan. Since the program was designed to finance renovations and help revitalize neighborhoods, the required down payment may be as low as 3.5 percent of the total cost.

In addition to low down payments, the eligibility terms of an FHA 203(k) loan are more flexible. In general to be eligible for an FHA 203(k) loan, you must have a credit score of at least 640. Unlike other loans, you do not need to be a first-time homebuyer in order to be eligible. If the renovation is extensive and you cannot live in the home during construction, up to six months of mortgage payments may be included in the FHA 203(k) loan, so you can avoid making double housing payments while living outside of the home.

Although some restrictions and special rules apply, 203(k) loans can be used to purchase and refurbish condos1, two-to-four unit properties, and mixed-use properties2, in addition to single-family residences and homes in planned unit developments. As a top 203(k) lender in the market, Prospect Mortgage can lend you the maximum amount under a 203(k) loan, which is 96.5 percent of the after-improved value*. For refinancing, the maximum loan amount is 97.75 percent of the after-improved value**. To check the current loan limits by county, visit or check with your Loan Officer for the current limits.

šOnly interior work is allowed for condos and the maximum loan amount is based on 100% of the after improved value.
˛Mixed used properties are allowed providing all square footage guidelines are met.

How the 203(k) Loan Works

The renovation lending specialists at Prospect Mortgage are committed to providing personalized service to you. From helping you understand the difference between a home construction loan and home improvement loan to answering any and all questions you may have, we’re ready to provide a description of how a 203(k) loan can work for your unique situation.

Before shopping for a home, make an appointment with a specialist from Prospect Mortgage. We’ll help you determine how much you can afford, and guide you through the application process. Once your purchase contract is accepted and the loan closes, you can begin renovating your future home.

203(k) Loans: Beyond the Basics

Now that you have the basics down, you may be wondering what else you need to know about FHA 203(k) loans. Perhaps the most important thing to know about FHA 203(k) loans is that there are actually two types: the Limited K and the “standard” Consultant K. The Limited 203(k) loan was specifically created for homes that do not have structural or foundational problems. If your home can be remodeled, repaired, or updated for less than $35,000, the Limited K may be right for you. If your home has structural damage or will require repairs in excess of $35,000, the FHA 203(k) Consultants will work with you and your Prospect Mortgage Specialist to find the loan that’s right for you.

Renovation Guidelines

When it comes to home renovation loans, there are particular guidelines to follow. Fortunately, the experts at Prospect Mortgage can answer your specific questions about the types of repairs and renovations you can perform when you finance your home with an FHA 203(k) loan. The eligible repairs differ between Limited 203(k) and “standard” Consultant K loans, so be sure to talk with a Prospect Mortgage specialist before moving forward with your home improvements.

Foundation Financing

If you live in a flood zone, you can secure financing to elevate your home above the flood tables instead of having to cash in your personal savings. By using a Prospect Mortgage rehab loan to raise the foundation of your home, you’ll avoid future water damage, help protect your property, and give yourself peace of mind when disaster strikes. If you’d like to raise the foundation of your home, contact a Prospect Mortgage representative today for more information.

Prospect Mortgage is the top 203(k) lender in the nation. According to data from the Department of Housing and Urban Development (HUD), Prospect Mortgage ranks No. 1 in the nation for originating 203(k) renovation loans.*** Our Loan Officers are ready and eager to discuss details of this helpful home-financing solution with you.


*For 203(k) purchase transactions the maximum loan amount is the lesser of the sales price + renovation costs or 110% of the after improved value, times the maximum LTV. Loan amount must be within FHA county loan limits.

** For refinance transactions the maximum loan amount is the lesser of the property value before renovation + renovation costs or 110% of the after improved value, times the maximum LTV.  Loan amount must be within FHA county loan limits.

***As of April 2016

The above content is for general informational purposes only and is not provided as professional advice for your specific situation. Please speak to a Loan Officer to discuss loan options available.


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