What Are the Requirements of an FHA Section 203(k) Loan?

An FHA Section 203(k) loan is one FHA-insured mortgage that pays for a home and its repairs, or refinances your current home and adds repair money. To qualify, you need to meet normal FHA borrower rules (a 580 credit score for 3.5 percent down), live in the home as your principal residence, and fit the repair rules for one of two versions: Standard 203(k), for work of $5,000 or more with an FHA-approved consultant, or Limited 203(k), for nonstructural work up to $75,000. The loan amount is capped by the value the home will have after the work is done, and the repairs must be finished within 12 months (Standard) or 9 months (Limited).

For how FHA loans compare with conventional loans backed by Fannie Mae and Freddie Mac, see what a Fannie Mae or Freddie Mac loan requires.

Standard vs. Limited 203(k)

You and your lender choose one version when the lender opens the FHA case. The main differences:

FHA treats work as too big for a Limited 203(k) if it will take more than 9 months, needs more than 4 draws per contractor, needs a consultant's work write-up or architectural plans, or keeps you out of the home for more than 30 days in total. That work needs a Standard 203(k).

A 203(k) consultant is an FHA-approved inspector who writes up and prices each repair. HUD caps the write-up fee at $1,000 for repairs of $50,000 or less, up to $2,000 for the largest jobs, plus up to $375 per draw inspection. These fees can be financed.

What repairs and properties qualify

Both versions can pay for plumbing, heating, cooling, and electrical work, roofing and gutters, kitchen and bath remodeling, accessibility changes, energy improvements, new appliances, decks, fences, and driveways, and lead-based paint stabilization in homes built before 1978. All work must meet HUD's Minimum Property Requirements and local building codes, and permits must be in hand before work starts. Decks and patios (and, on a Standard 203(k), landscaping and other site work) qualify only if they raise the home's value by at least their cost, or on a Standard 203(k) are needed to stop erosion.

Only the Standard 203(k) can pay for structural work: room additions, adding units, adding an accessory dwelling unit (ADU) attached to the house (an existing detached ADU can be renovated), foundation repair, rebuilding a house on its existing foundation, moving a house onto a new foundation, landscaping, and storm shelters.

Neither version pays for luxury items such as a new swimming pool, an outdoor hot tub or sauna, a barbecue pit or outdoor fireplace, a tennis court, or a gazebo. An existing in-ground pool can be repaired or removed.

Eligible properties:

• One- to four-unit homes, including townhouses and homes with an ADU.
• Condominium units, but only for work inside the unit.
• Manufactured homes, if the work does not touch structural parts.
• Mixed-use buildings with one to four units where at least 51 percent of the floor area is residential.
• HUD-owned homes listed as eligible for 203(k) financing. See whether a mortgage can finance a bank-owned (REO) home.

The home must have been finished for at least one year before the lender orders the FHA case number. A house that fails FHA's health and safety standards can still qualify if the 203(k) work fixes the problems.

Borrower requirements

A 203(k) uses the same borrower rules as a standard FHA loan, covered in our guide to FHA loan requirements:

• Credit score. 580 or higher qualifies for maximum financing (3.5 percent down on a purchase). Scores from 500 to 579 are limited to 90 percent financing, so 10 percent down. Lenders may set higher minimums of their own.
• Occupancy. You must live in the home as your principal residence. The program is open to owner-occupants, HUD-approved nonprofits, and government agencies, not to investors.
• Contractor. The lender must approve a licensed, bonded contractor (where your area requires it) who signs a contract to finish the work for the estimated price and time. You can do work yourself only if the lender documents that you are a licensed contractor or have rehab experience, and you are reimbursed for materials only.
• Purchase contract. It must say the sale depends on your 203(k) loan approval.

How the loan amount is set

An FHA roster appraiser values the home "subject to" the planned repairs. This after-improved value, plus the as-is value, sets the loan. For a purchase, FHA insures the lesser of:

1. 96.5 percent (with a 580+ score) of the smaller of:

• the as-is value (the lower of the price or the as-is appraisal) plus financed repair costs, fees, contingency reserve, and any payment reserve, or
• 110 percent of the after-improved value (100 percent for a condo); or

1. The FHA loan limit for your county. For 2026, limits for a one-unit home run from $541,287 in most counties to $1,249,125 in the highest-cost areas.

A contingency reserve, money set aside for surprises, is 10 to 20 percent of repair costs on a Standard 203(k) for a home 30 years old or older (15 percent if utilities are off). For a younger home it is optional unless there is termite damage (then 10 percent minimum), and it is optional on a Limited 203(k); the cap is 20 percent in every case.

Worked example: a $250,000 house with $70,000 of work

• Price and as-is value: $250,000. Financed repairs, consultant fee, permits, and contingency: $70,000. After-improved value: $340,000.
• Option A: $250,000 + $70,000 = $320,000.
• Option B: 110% x $340,000 = $374,000.
• The smaller is $320,000. 96.5% x $320,000 = $308,800 base loan.
• Your minimum down payment: $320,000 - $308,800 = $11,200.
• FHA's upfront mortgage insurance premium of 1.75 percent ($5,404) can be added, for a total loan of $314,204. Annual mortgage insurance is also charged, as on any FHA loan.

If the after-improved appraisal came in at $280,000, Option B would be $308,000, and the base loan would drop to $297,220 (96.5 percent of $308,000), so you would bring more cash.

For a refinance, the limit is generally the lesser of your existing debt plus repair costs and fees, 97.75 percent (580+ score) of the value-based amount above, or the county limit.

How repair draws and the deadline work

You close once. The repair money goes into an interest-bearing rehabilitation escrow account, and the lender pays it out in draws as work is finished:

1. The contractor pulls permits and finishes a phase of work.
2. You, the contractor, and the consultant (if you have one) sign form HUD-9746-A, the draw request. On a Standard 203(k), the consultant inspects first.
3. The lender approves only completed work, plus materials you or the contractor have ordered under a supplier contract (prepaid materials, or up to 50 percent of unpaid materials). It holds back 10 percent of each draw until the end and collects lien waivers.
4. The lender must release approved funds within 5 business days. On a Standard 203(k), checks go to you and the contractor jointly unless you authorize direct payment.

On a Limited 203(k), the lender may pay up to 50 percent of materials and labor at closing if the contractor will not wait. When total repairs are over $15,000, the lender or a third-party inspector must confirm the work is done before paying for it; at $15,000 or less, contractor receipts or your signed letter of completion meet HUD's rule, though the lender may still order inspections and charge you for up to two per contractor.

The deadline is set in the Rehabilitation Loan Agreement you sign at closing: no more than 12 months for a Standard 203(k) and 9 months for a Limited 203(k). Under that agreement, the lender can treat the loan as in default if work does not start within 30 days of the loan's disbursement date (when the lender releases the funds), stops for more than 30 days in a row, or misses the deadline. If the work runs late, you can ask the lender for an extension with an explanation and a new completion date; it can approve one only if your payments are current or you are following a forbearance agreement. For the final draw, you sign a letter of completion, and the lender gets any required certificate of occupancy and local inspections. On both versions, the lender may keep the holdbacks for up to 35 days or the time state law allows to file a lien, whichever is longer, if needed to keep other liens from taking priority over the mortgage. Any unused mortgage payment reserve goes toward your principal.

Other programs you can combine with a 203(k)

A 203(k) can be paired with an energy-efficient mortgage, and on a Limited 203(k) those energy costs can go above the $75,000 cap. It can also finance a HUD home bought through the Good Neighbor Next Door program, where FHA buyers put down $100.