FHA 203(k) Loan Requirements for 2021

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Updated on Wednesday, May 26, 2021

You can use a 203(k) loan, which is backed by the Federal Housing Administration (FHA) to purchase a fixer-upper, refinance your mortgage and even cover the cost of home repairs, but you’ll need to review the 203(k) loan requirements before deciding if it’s the right option for you.

The FHA’s 203(k) loans are available for borrowers with lower credit scores, but they’re restricted to specific types of properties and must be used for your primary residence. Below is a breakdown of what’s required to qualify.

What is an FHA 203(k) loan?

The Federal Housing Administration offers 203(k) loans to help buyers purchase and improve their home. The money can be used for a number of home improvement projects, including updates to a home’s appearance and safety and energy conservation improvements (more on this below).

Here’s a quick look at the two types of 203(k) home loans:

  • Standard 203(k) loan. This loan starts at a $5,000 minimum and can be used for major updates and home repairs on single-family properties. You’ll be required to hire a HUD-certified 203(k) loan consultant for the standard loan and the consultant will serve as a liaison between you, your lender and contractor.
  • Limited 203(k) loan. The limited loan can be used for minor improvements and repairs up to a total of $35,000. There is no minimum repair amount and you aren’t required to hire a 203(k) consultant to use the funds.

FHA 203(k) loan requirements

There are some very specific requirements to qualify for 203(k) financing. Not only does the property have to be FHA-eligible, but as a borrower you must also meet several FHA requirements.

Property requirements

The FHA’s 203(k) loans are available for each of the following property types — once a year has passed post original construction date:

  • One- to four-unit homes
  • FHA-approved condominiums in a project with units that need interior repairs
  • Ground-only or “site” condominium units
  • Manufactured housing where the rehabilitation doesn’t affect structural components
  • Mixed-use properties with one to four units, where more than half of the square footage is residential
  • HUD real estate-owned (REO) properties

Borrower requirements

As a borrower, you’re required to meet each of the below eligibility guidelines:

  • Minimum credit score of 500
  • Lawful and permanent U.S. residency or qualified non-permanent residence (citizenship isn’t required)
  • No delinquencies on any federal tax debt or previous FHA loans
  • The property must become your main residence

You’ll also need to be able to provide the following information:

  • A valid Social Security number
  • Your name, date of birth and address
  • Pay stubs, W-2s, tax returns or any other required income documentation

What types of projects are 203(k)-eligible?

While 203(k) loans can be rather restrictive, there are many renovation projects and repairs that are eligible for financing under the FHA 203(k) program. They include, but aren’t limited to:

  • Structural alterations
  • Reconstruction
  • Improvements to a home’s function or appearance
  • Improving or eliminating health and safety hazards
  • Replacing or repairing plumbing, wells or septic systems
  • Replacing or repairing roofing, gutters or downspouts
  • Replacing or adding flooring
  • Major site improvements or landscaping projects
  • Making the home accessible for someone with a disability
  • Energy efficiency improvements

Pros and cons of an FHA 203(k) loan


A 203(k) loan can help simplify the process of buying a home that needs repairs. Plus, terms on FHA loans are competitive with other types of mortgages. Here are some of the benefits of choosing a 203(k) loan:

  • Low credit requirement. You can qualify for an FHA 203(k) loan with a credit score as low as 500, which is 120 points lower than the minimum score required by most conventional mortgage lenders.
  • Low down payment requirement. A minimum 3.5% down payment is required for borrowers with a credit score of 580 or higher. Note that the requirement jumps to 10% for borrowers with a score between 500 and 579.
  • Loans can include remodeling costs. Instead of taking out a mortgage, plus getting additional loans for various home improvements, the 203(k) loan can help buyers find a single financing solution.
  • Competitive rates. Interest rates for FHA 203(k) loans may be lower than other types of financing for home improvements, including personal loans and credit cards.


Taking out a 203(k) loan can be more complicated than applying for a regular home loan since you’ll be subject to additional guidelines and restrictions. Here are some of the main drawbacks:

  • You may have to hire a loan consultant. For a standard 203(k) loan, you’re required to hire a loan consultant. The consultant will perform various tasks to make sure FHA standards are met, but their services could cost you up to $1,000 or more in fees.
  • You’ll have strict requirements. Government-backed FHA loans have many rules, and 203(k) loans are no exception. If your property and repairs fail to meet the numerous FHA standards, you may not qualify.
  • You’ll have several costs and fees. Your total closing costs will depend on your lender, and you’ll also pay upfront and annual mortgage insurance premiums.

FHA 203(k) FAQs

First, you’ll need to find a lender who offers 203(k) mortgages. For the standard 203(k) loan, you’ll be required to find a licensed consultant after you apply. The consultant will then help you obtain and submit contractor estimates to your lender. If you’re approved, the funds will go into escrow and the lender will pay the contractor as work is completed.

You can use the HUD lender list search, however, the results only include lenders who have completed a 203(k) loan in the previous 12 months.

You can use the loan for just features that are attached to your home’s existing structure. Additionally, 203(k) loans don’t cover any improvements that are considered recreational or luxury items, such as swimming pools or outdoor fireplaces.

The limited 203(k) loan covers renovations up to $35,000. Standard loans can cover the cost of any property that falls within the FHA mortgage limit for your area. The estimated value shouldn’t exceed 110% of the projected value after repairs, or the purchase price plus repair costs, whichever is the smaller amount.

A 203(k) loan can only be used for a home that will be your primary residence, and you can’t rent or sell until you’ve lived at the residence for at least one year. The FHA doesn’t offer lending for investment properties.