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FHA 203k Loan Requirements

What Are FHA 203k Loan Requirements and Guidelines for Qualifying?

What buyers and homeowners should know.

The FHA 203k loan for renovation has similar qualifying requirements as a standard FHA 203b loan which has the most flexible guidelines with minimal down payment than any other type of loan currently.

The difference between the two is that the FHA 203K will allow for the repairs, rehab, or remodeling of your home to be included into the new loan while the FHA 203B won’t.

So, what are those qualifying guidelines:

Credit and Credit Scores for 203k Loans:

When it comes to credit and credit scores, it's important to understand how they affect FHA loans and specifically the Renovation 203k loan program. While FHA loans may be more flexible with lower credit scores, individual FHA lenders usually have their own minimum credit score requirements, this also applies to Lenders who specialize in doing 203k loans.

The 600+ Club

Now, let's talk 203k credit scores - that three-digit number that holds quite a bit of sway.

Here's the deal:  Standard FHA 203b loans and 203k loans have a bit of a score face-off. It's like comparing apples to oranges. When you're surfing the web, you might come across sources tossing around some lower credit score figures.  This is where the difference is, between FHA lenders. Standard FHA 203b loans without Rehabilitation funds may be allowed a lower credit score threshold than FHA 203k Loans.  So . . . .

What are the FHA 203k Credit Score Requirements?

The required credit score on a 203k loan with the minimum 3.5% down-payment will typically be above 600+ for most 203k Lenders to increase likelihood of approval.  For credit scores below 600 and as low as 580 it’s best to ask your specific 203k Lender and for even lower credit scores a larger down-payment will be expected to help counterbalance a less-than-ideal credit history.

Now, why the difference, you ask? Because your new home loan is not just about buying a home, but also about giving it a facelift or a complete rehab so this double-duty adventure finances both.

Understanding Income and Qualifying Ratios for FHA 203k Loans

Whether you earn income through full-time or part-time employment, it can be taken into account, as long as there is a consistent two-year history. However, there are some exceptions for instances like schooling, training, or maternity leave.

For those who are self-employed or receive income as a 1099 contractor, it's important that your income demonstrates stability over a two-year period. This showcases to lenders that your earnings are reliable and consistent.

Moreover, if you have rental income, it is recognized as a valid source of revenue for loan qualification purposes.

In addition to regular income sources, miscellaneous forms of income are also considered acceptable. This includes payments such as child support, alimony, maintenance, and Note income. To be eligible, this miscellaneous income should have a documented 12-month history. Furthermore, there needs to be evidence indicating that this income will continue for the next three years.

What Are 203k Income Qualifying Ratios?

The amount of income you can dedicate towards your new house payment plus all your monthly credit debts is 43% of your gross income which is called your “debt to income” (DTI).  Now a 43% DTI is an FHA guideline but if needed you could get approved to use 50% or more of your gross income towards your new house payment and monthly debt obligation with compensating factors.  These compensating factors might include a particularly strong credit history, substantial employment tenure, or a significant financial reserve.

For W-2 earners, this calculation is based on your gross income, while for 1099 and self-employed individuals, it's based on net income (after expenses).

What is the minimum FHA 203k Down Payment?

A mere 3.5%—that's the minimum amount required as a down payment for a 203(k) loan. This modest sum opens the door to your home’s possibilities, allowing you to transform a fixer-upper into your desired home.  And the source of these funds is as versatile as the loan itself. Your down payment can stem from your checking account, nest egg in a savings account, or even be drawn from sources like a well-padded 401(k). This flexibility enables you to tap into various financial sources to kick start your home ownership journey.

Gift Funds Are Allowed

But that's not all. The 203(k) loan program understands that sometimes, a little help from loved ones can make all the difference. Enter the option of down payment and closing costs as a gift. Relatives or significant others can contribute, easing the financial burden and turning a collective dream into reality. Additionally, for those with a stash of cash-on-hand, a carefully documented paper trail can serve as a legitimate source for down payment and closing costs.

203k Closing Costs and Contributions: Unraveling the Options

The financial perks of the 203(k) loan don't stop at the down payment. A further advantage lies in the contribution towards closing costs. Interested parties involved in the transaction, which may include the seller, can contribute up to 6% of the closing costs. This additional leeway offers a breath of fresh air, particularly for those navigating the intricacies of a real estate transaction.

Moreover, when it comes to cash reserves, the 203(k) loan takes a more relaxed stance for 1-2 unit properties. Unlike many other loans that mandate a cushion of cash reserves, this program recognizes that different properties come with different financial demands. This is a testament to the program's adaptability, making it an attractive choice for a wide array of home buyers.

203k Eligible Property Types you have to Choose from: 

Unleash Your Vision on the different Range of 203k Eligible Properties! Whether you're drawn to the charm of a single-family home with its intimate coziness, the versatility of a multi-unit dwelling offering potential rental income, the modern convenience of condos, the classic appeal of town homes, or the forward-thinking design of public urban developments (PUDs) and the dynamic blend of residential and commercial in mixed-use properties - the canvas is yours to paint on!

What Properties are 203k Eligible?

Here are the 203k eligible properties you have to choose from: It can be a Single family, 2-4 units, condo, town home, PUD’s (public urban developments) and even mixed-use properties can be allowed.  

Well, there you have it, discover the gateway to your perfect home with incredibly flexible terms tailored to help you achieve your journey towards homeownership.  Plus, with funds allocated for repairs and renovations, the home you've been envisioning is within reach.  

More About The FHA 203K Loan!


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FHA 203K Loan Requirements

What Are FHA 203k Loan Requirements and Guidelines for Qualifying?


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The FHA 203k Calculator is easy to use and easy to read your results.


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  • David Oetjen says:

    Is there a maximum limit on household income to qualify 203k loan?

    • Hi David,

      There is “No” maximum household or individual income limit on 203k loans nor is there a maximum sale price but there is a maximum loan limit depending on the county where the property is located in.

      Best of luck

  • We had a short sale 2 1/2 years ago and were told that we do not qualify for a 203K by a lender. Is this correct? How can a bankruptcy be OK after 2 years, but a short sale is not?

    • Hi Mae

      Unfortunately, FHA Guidelines put a short-sale in the same category as a foreclosure and requires a 3-year wait period. The thought process being that, even though your Lender agreed to the short-sale, that Lender took a loss in much the same manner as they would have if the property went to foreclosure. Now, that’s not to say that a Lender won’t consider a shorter term if you have documented extenuating circumstances. Also, FHA will permit Lenders to consider a shortened wait period after a minimum 12 month positive payment history with minimum credit scores.

      Based on the time frame you mentioned the horizon is near so it’s worth inquiring with another lender on your particular situation.

      Best of luck.

  • I’ve been pre-approved for either a standard FHA loan or a 203K loan. The house that I’ve seen that we like says that it’s not eligible for the 203k. It’s a HUD home that need some small repairs — some cracking in the corners of the doors. Why are some HUD homes not eligible for 203k?

    • Hi Josh

      On HUD homes there are properties which are “Insurable” which allow for standard FHA loans but would also include the 203k as an option. Then there are “uninsured” properties that require the buyer to use some type of rehab loan such as the 203k so it would be rare if 203k financing is not allowed. From what you described it should be doable so to make sure the 203k is not an option on your HUD home have your Real Estate agent or Loan Officer verify.

      Best of luck

  • I was recently pre-approved for a FHA loan and found a house we like but it had roof damage and needed a water heater. The lender that I am pre-approved with told my realtor that my credit score wasn’t high enough for this type of loan. My middle score is 648 and what I’m reading online says its the same requirement as FHA. Could this be different with different lenders?

    • Hello Tonya,

      The answer to your question is “YES” there can be different acceptable minimum credit scores depending on the FHA / 203k lender. Typically though lenders will allow lower credit scores on standard FHA loans than FHA 203k loans but the middle credit score you mentioned (648) should be sufficient for either type of FHA loan so contact another FHA/203k loan specialist to see if you have better luck with someone else.

      Best of luck to you

  • ray hawkins says:

    can i buy a house on a r3 lot and add two (2) additional units with a 203k loan.

    • Hello Ray,

      Yes, you can add or reduce units as long as the end results are within 1 to
      4 with a 203k loan.

      Good luck.
      203K Mortgage Lender

  • With the 203k loans can your closing cost be rolled into your loan?

    • Hi Nikki,

      If it’s a 203k refinance then the closing cost can be financed into the loan but if it’s a purchase the answer is “No” but the costs associated solely on the rehab or renovation part can be.

      Hope that helped
      203K Mortgage Lender

  • Hi,
    My husband and I are very interested in this loan, but feel we have been spinning our wheels. OUr mortgage broker told us to get a detailed estimate and to find out if our current plans are permittable by our town, before we can do anything. We got on estimate that is about 3 times the value of our home. It was very deflating to us as we truly believe this loan is THE loan that will help us with our project. We live in an 1,100 sq ft home, built in 1867 and our plan is to add 900 sq ft.
    I feel very frustrated! and want to move forward, but now I read in the requirements you say we need 3.5% of a down payment. Now even further disheartened.

    • Hello Betsy,
      The FHA 203k loan is an option for homeowners interested in doing repairs or renovations especially those who have limited equity. If the estimate you are referring to is for the improvements then that is okay because the emphasis will be on the after improved value but if after everything is said and done and you are not within the 110% of the after improved value then your estimate on the improvements needs to be modified. As far as the 3.5% down payment that would only apply to homebuyers not homeowners when using the 203k loan to purchase a property.

      Contact one of the 203k specialists for your state on the site and good luck.

      203K Mortgage Lender

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