Like all FHA loans, the 203k has a low down payment requirement. The loan requires you to put down 3.5% of the total purchase price plus repair costs and required contingency (“buffer”) costs.
For instance, a $200,000 home with $30,000 in repair and contingency costs would require a down payment of $8,050 (3.5% of $230,000).
Keep in mind that closing costs apply and are in addition to the down payment. Closing costs for a 203k loan are typically between 3% to 6% of the purchase price.
It will likely take 60 days or more to close a 203k loan, whereas a typical FHA loan might take 30-45 days. There is more paperwork involved with a 203k, plus a lot of back and forth with your contractor to get the final bids. Don’t expect to close a 203k loan in 30 days or less.
Usually, no. You must choose licensed contractors for all work. The only exception is if you are licensed and a full-time contractor by trade. In these cases, some lenders may approve DIY work.
Yes. You can choose a 203k loan with an adjustable-rate (ARM) or a fixed rate (30- or 15-year term). An adjustable-rate could save you money, especially when rates are high, if you plan to sell the home soon after the first year you own it.
Yes. Along with the usual closing costs, expect an extra supplemental origination fee of about 1.5% of the loan amount. And, you’ll be charged a HUD consultant fee depending on the size of your project. This fee typically ranges from $400 to $1,000.
An FHA 203k loan can help you gain immediate equity in your home by financing home improvements that add value right away. However, the application process takes more time and more attention to detail when compared to a standard FHA or conventional loan.
The lender will order an appraisal that shows two values: the “as-is” or current property value, and the “improved value” after renovations.
- The existing debt before rehab, plus the estimated cost of improvements and allowable closing costs
- The as-is value plus rehab costs
- 110 percent of the after-improved value x %
If you have owned the property for less than one year, the lender must use acquisition cost, plus the documented rehabilitation costs, for your maximum loan amount.
How do I apply?
It’s always wise to shop around and find the best lender. But with a 203k loan you may not always want the lender with the lowest interest rate.
It’s often better to accept a higher interest rate if it’s coming from a lender with lots more 203k loan experience than the lender who’s offering a lower rate.
This is a rare exception in mortgage shopping in which the lowest rate may not be in your best interest.
Complete a short form at this link, and check your eligibility for a 203k loan from a lender in our network.
Popular Articles
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
Move in and enjoy
- Projects that will take longer than 6 months
Once your contractor completes the work, you own a renovated house that may already be worth more than you paid for it.
No. Only permanent, attached upgrades are allowed to be financed. Appliances are okay, but not furniture 
which does not add value to the home and can be removed.