How Does an FHA 203K Loan Work on Fixer-Uppers?

In this blog, we will cover and discuss FHA 203k loan requirements on fixer-uppers. HUD, the parent of FHA has an acquisition and renovation loan program for homebuyers of fixer-uppers. FHA 203k Loans allows home buyers to purchase homes that need renovation.

What Type of Work Can You Do With FHA 203k Streamline Loans?

What Type of Work Can You Do With FHA 203k Streamline Loans?

The Streamline 203k allows minor cosmetic repairs with a construction budget of up to $35,000. The Standard 203k allows full blow renovations which included room additions and total gut/rehab. Per FHA 203k Mortgage Guidelines, homebuyers can get acquisition and renovation loans all in one home loan closing with a 3.5% of the after improved value.

FHA 203k Mortgage Guidelines On Type Of Work Allowed

FHA 203k Mortgage Guidelines On Types Of Work Allowed. FHA 203k Streamline, which is commonly referred to as FHA Limited 203k Loan, is for cosmetic repairs. The scope of work that is allowed is cosmetic repairs with no room addition or changing structural walls.

Maximum Renovation Budget on FHA 203k Streamline Loans

The maximum renovation amount is limited to $35,000. With the full FHA Standard 203k Loan, there is no maximum renovation budget. Full Standard FHA 203k Loans allow structural changes, room additions, alterations, and structural repairs.

Maximum Loan Limit On FHA 203k Loans

Acquisition and renovation costs are capped at the FHA county limits. 203k Acquisition and Renovation Loans is a great loan program for buyers of fixer-uppers and/or homeowners who want to customize their own homes. Homebuyers can go up to the maximum loan limit for their areas. Buyers are allowed to do total gut/rehab and customize the home to their needs.

FHA 203k Mortgage Guidelines Streamline Renovation Loans

FHA 203k Mortgage Guidelines On Streamline Renovation Loans are as follows:

  • Renovation budget of no more than $35,000
  • Room additions and structural work is prohibited
  • HUD Home Consultant is not mandatory
  • Maximum of up to three separate contractions; and
  • Two payments for repairs per contractor

FHA 203k Mortgage Guidelines On Full Standard Renovation Loans

FHA 203k Mortgage Guidelines On Full Standard Renovation Loans

FHA 203k Mortgage Guidelines on standard renovation loans allow the following repairs. The renovation budget is capped out at the area’s county FHA Loan Limits. Unlike the Streamline, with Standard 203k’s, Additions, alterations, and structural projects are allowed. Homeowners are allowed no more than one general contractor. No more than 5 draws to the general contractor

How Does The 203k Renovation Mortgage Process Work

Most lenders have overlays on FHA 203k Loans besides the agency FHA 203k Mortgage Guidelines by HUD. Capital Lending Network, Inc. has no overlays on government and conforming loans. We just follow agency FHA 203k Mortgage Guidelines. Mortgage Underwriters will follow the three 3 Cs of underwriting.

The Three C’s of Mortgages

Credit, Collateral, Capacity. Loan officers will pre-qualify borrowers. Some Loan Originators do not take the time to ask for proper documentation and review credit, income, reserves, and other factors before pre-approving a borrower. This is the main reason for last-minute mortgage denials or stress during the mortgage process.

The Mortgage Process

Steps that are taken during the qualification process is the following process:

    • Collecting a list of documents
    • Make sure all documents are complete and have no missing pages
    • A credit report should be pulled and thoroughly reviewed
    • Agency Guidelines should be reviewed
    • Every borrower’s situation is different
    • Every borrower has different credit, debt, income, and assets
    • The Automated Underwriting System (AUS) should render an automated approval

Once a loan officer fully qualifies borrowers after reviewing docs, credit report, AUS, and does a preliminary underwriting, a pre-approval is issued. Borrowers can now shop for a fixer-upper and enter into a real estate purchase contract.

Scope Of Work

Most lenders have a scope of work worksheet for 203k borrowers. This is good for both Streamline and Standard 203k’s. It is a user-friendly format template for borrowers, contractors, and lenders This simplifies the 203k process. Sheet requires borrowers to complete all the work that needs to be done. This includes cosmetic and major repairs. Need tentative initial pricing projections.

HUD’s Property Requirements

HUD's Property Requirements

HUD will require the following required FHA required repairs :

    • Peeling paint in exterior/interior needs to be corrected per code
    • Water and mold damage
    • Pest and termite control
    • Mold remediation
    • Asbestos removal remediation
    • Trip hazards need to be corrected per code
    • Missing and broken Handrails needs to be repaired and/or replaced
    • Damaged drywall needs to be repaired and/or replaced

Processing And Underwriting 203k Loans

Processing and Underwriting are not difficult. It is like processing and underwriting any other FHA Loans but requires some added paperwork. A Mortgage Loan Originator will collect all documents. The mortgage processor will review all documents and prepare the file for the mortgage underwriter.

The Role of the Mortgage Underwriter

The mortgage underwriter will fully review and underwrite the file. Issue conditional loan approval if borrower and property meet all FHA 203k Mortgage Guidelines The file gets back to the mortgage processor for them to clear conditions. Once conditions are cleared, it goes back to the same mortgage underwriter for a clear to close

During FHA 203k Loan Underwriting Process:

On full Standard 203k’s, a HUD consultant will be required. Need to order as-is/as a completed home appraisal. The appraiser will need the scope of work and the contractor’s bid. The appraiser will come up with an as-is value and the completed value on the appraisal report. Mortgage Underwriter will review home appraisal prior to issuing a clear to close. Escrows for construction will be set up.

Getting Qualified and Pre-Approved With an FHA 203k Lender

Homebuyers of fixer-uppers looking for a direct lender with no overlays, please contact us at CLN at 800-900-8569. We are national 5-star lenders and are experts on FHA 203k Renovation Loans.  

Using FHA 203k Loans For Fixer-Upper Homes

Using FHA 203k Loans For Fixer-Upper Homes

In this blog, we will cover and discuss FHA 203k streamline rehab loans for homebuyers of fixer-uppers. The FHA 203k Streamline Rehab Loans For Buyers Of Fixer Uppers is different from the standard FHA 203(k) loan.  FHA 203k Loans For Buyers Of Fixer Uppers is designed for minor rehabs for a new home purchase. The maximum rehab loan is $35,000.

Full Renovation With No Maximum Loan Amount on Full FHA 203k Loans

Major remodeling is with no limit on construction funding is the standard FHA 203k Loan. FHA 203k Streamline Loans For Buyers Of Fixer Uppers limits the rehab budget to $35,000. Homeowners can still carry out minor cosmetic alterations to homes using this loan. Do not confuse the FHA 203k Streamline Loans with the standard full 203k. In this article, we will discuss and cover the guidelines on 203k renovation loans.

Loan Limit On FHA 203k Streamline Rehab Loans

Borrowers of FHA 203k Streamline Rehab Loans can borrow between $5,000 and $35,000 dollars. Borrowers are not permitted to make any structural alterations to the property since these are not allowed. So what types of repairs can homeowners do?

Types Of Repairs Allowed With FHA 203k Streamline Rehab Loans

Borrowers can use an FHA Streamlined 203(k) loan for a wide range of alterations and repairs to your new home. Borrowers can use it to replace old guttering and downspouts. Replace existing HVAC units, to repaint the entire property. Rewire. Re-plumb the property. New windows and doors. Waterproof the entire home, including the basement. Repair or replace a septic tank and improve accessibility. Can also have roof repairs carried out.

Luxury Renovations Not Allows On FHA 203k Loans

Homeowners cannot use finance to install luxury items such as pools, hot tubs, tennis courts, outdoor kitchens, or Jacuzzis. Structural changes or additions such as new rooms are not allowed. Replacing porches, patios, and decks is allowed. All repairs and additions must comply with local building regulations and any local authority zoning codes.  They must also meet HUD’s minimum quality requirements.

Applying And Qualifying For FHA 203k Streamline Rehab Loans

Applying And Qualifying For FHA 203k Streamline Rehab Loans

Once a homebuyer has chosen the home they want to buy, make a list of the improvements or rehabilitation work they want to carry out. The purchase contract should state that the loan will be an FHA 203k Streamline Rehab Mortgage. Fail to do that and you may be forced to purchase the property regardless. Homebuyer needs a spreadsheet on the scope of work. A HUD Approved general contractor needs to be named. The contractor must be qualified to carry out all the work contracted.

Home Appraisal Requirement

FHA 203k Appraisal needs to be ordered. As is and as completed appraisal. When the appraisal is carried out, the total value of the house will be calculated as if the work had been carried out. On approval of the loan and the work, the mortgage will be closed as normal for the combined cost. The price of the real estate plus the cost of the repairs. That cost cannot now be changed and must be carried out for the stipulated price.

Budget of the Renovation on FHA 203k Loans

The sum approved for the work will be placed in an escrow account, together with an additional 10% – 20% contingency to be used only if needed and approved. The contractor can receive 50% at the start of the work and 50% at completion. The total spent is amortized into your mortgage, so need not be repaid separately. That is fundamentally how the  FHA Streamlined 203(k) loan operates.

FHA 203k Streamline Versus Standard FHA 203k Loans

It is much simpler than a regular 203(k) and quicker to have approved. Capital Lending Network is FHA Loan Specialist and can do business in multiple states.  Please contact us at 800-900-8569 or text us for a faster response. 


Peter has 7+ years of experience in residential lending. He is a licensed Realtor in the Chicagoland area.