FHA 203(k) Rehabilitation Mortgage Insurance

The Federal Housing Administration’s Section 203(k) mortgage insurance helps both borrowers and lenders by insuring a single, long-term, fixed or adjustable rate loan that covers the acquisition and rehabilitation of a property. Specifically, Section 203(k) enables homebuyers and homeowners to finance the purchase (or refinancing) and rehabilitation of a house through a single mortgage or to finance the rehabilitation of their existing home. 

The extent of the rehabilitation covered by Section 203(k) insurance ranges from relatively minor to almost total reconstruction, provided that the existing foundation system remains in place. The types of improvements that borrowers may make using Section 203(k) financing include: 

• structural alterations and reconstruction 
• modernization and improvements to the home’s function
• elimination of health and safety hazards
• changes that improve appearance and eliminate obsolescence
• reconditioning or replacing plumbing; installing a well and/or septic system
• adding or replacing roofing, gutters, and downspouts
• adding or replacing floors and/or floor treatments
• major landscape work and site improvements
• enhancing accessibility for a disabled person
• making energy conservation improvements

Next Steps

1. Check the current FHA mortgage limit online.
2. Apply through an FHA-approved lending institution. Visit the Department of Housing and Urban Development’s website for a searchable listing of approved lenders.
3. For More Information, contact the FHA Resource Center.  

Special Considerations 

• Section 203(k) insured loans can finance the rehabilitation of the residential portion of a property that also has non-residential uses; they can also cover the conversion of a property of any size to a one- to four- unit structure. 
• The home must be at least one year old. 
• A portion of the loan proceeds is used to pay the seller, or, if a refinance, to pay off the existing mortgage, and the remaining funds are placed in an escrow account and released as rehabilitation is completed. 
• The cost of the rehabilitation must be at least $5,000, but the total value of the property must still fall within the FHA mortgage limit for the area. 
• The value of the property is determined by either (1) the value of the property before rehabilitation plus the cost of rehabilitation, or (2) 110 percent of the appraised value of the property after rehabilitation, whichever is less.
• HUD requires that properties financed under this program meet certain basic energy efficiency and structural standards.

Additional Resources