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10-Step-Guide-to-FHA-203K-loans

Buying a Fixer-Upper? A 10-Step Guide to FHA 203K Loans

If you’re thinking about buying a home that needs some work, an FHA 203K loan might be the perfect solution. It allows you to roll the cost of repairs and renovations into your mortgage, making it easier to turn a fixer-upper into your desired home.

Now, if you’re wondering about the 203k buying process or not sure how to start, this 10-step guide was put together to walk you through what to expect from the offer to closing.  Whether you're a first-time buyer or an experienced homeowner, this will help you stay on track and avoid delays.

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First, What’s the Difference Between Standard and Limited 203K Loans?

Before we jump into the steps, you should know that FHA 203K loans come in two types:

  • Limited 203K Loan – Covers smaller renovations up to $75,000 and only requires a contractor’s bid.
  • Standard 203K Loan – For larger renovations over $75,000, requiring a Cost Consultant along with a contractor’s bid.

Now that we’ve covered the basics, let’s dive into the 10 steps!


Step 1: Choosing the Right Property
You can use an FHA 203K loan to purchase:

  • Single-family homes
  • 2- to 4-unit properties
  • Condos (with certain restrictions)
  • Planned Unit Developments (PUDs)
  • Mixed Use (with some restrictions)

Each property type has a maximum loan limit, which varies by location. Be sure to check what limits apply in your area before moving forward.


Step 2: Making an Offer

Your offer needs to factor in:

  • The contracted sale price of the home
  • The estimated cost of repairs & renovations
  • Future Value after Improvements are made

If possible, meet with a contractor before making an offer. That way, you’ll have a clearer idea of how much the necessary renovations will cost. The final loan amount will be based on either the purchase price plus repairs OR 110% of the after-improved value—whichever is lower.


Step 3: Submitting the Offer

When submitting your purchase contract, you can state that you are financing with an FHA 203k Loan.


Since 203K loans involve an extra step or two, closing usually takes 45 to 60 days. Work with your lender to ensure your contract allows enough time for all the necessary approvals.


Step 4: Getting Repair Estimates

Now that your offer is accepted, it’s time to finalize the scope of work with a contractor or Cost Consultant (if required).


This step includes:

  • A detailed bid from the contractor
  • Optional home and termite inspections (to include in repair estimates)

Step 5: Ordering the Appraisal

The lender will now order an appraisal to determine the “after-improved value” of the home. This value is based on:

  • The contracted price and current condition of the home
  • The proposed renovations outlined in the contractor’s bid

Step 6: Finalizing the Loan Amount

Once the appraisal is complete, your lender will finalize your loan amount. Here’s how it works:

  • The total cost of the home with renovations calculated
  • Your minimum down payment is 3.5% of this total
  • The loan amount must be within FHA’s limits for your area

Step 7: Loan Approval & Signing the Final Documents

At this stage, your loan is submitted for final approval. Once approved, you’ll sign your final loan documents and get ready for closing.


Step 8: Loan Disbursement & Funding

This is when everything comes together! The loan funds are disbursed, covering:

  • The purchase price pay-out (or existing loan if refinancing)
  • Setting up an escrow account for your renovations

Step 9: Closing & Welcome Package

Once everything is finalized, your loan officially closes! Shortly after, your lender will typically send you a 203K welcome package related to your renovation funds.


Step 10: Inspections & Final Payouts

Once the work begins, funds are released in phases:

  • Limited 203K Loans – One inspection and two payments (one at the start, one at completion).
  • Standard 203K Loans – Up to five inspections and payouts as work progresses.

The renovation must be completed within nine or twelve months, depending on whether it’s a Limited or Standard 203k. Any leftover funds can either go toward additional improvements (if approved) or be applied to your loan principal.


Ready To Get Started

Now that you know what to expect, you’re one step closer to buying and renovating your dream home! If you still have questions, be sure to reach out to a 203K specialist for your area to guide you through the process.


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