An FHA 203(k) loan lets you buy a home that needs work and borrow the repair money in the same mortgage. Instead of closing on the house and then hunting for a second loan for the roof or the kitchen, you close once, the repair budget goes into an account, and contractors are paid in stages as the work gets finished.
It's how a buyer with 3.5% down can buy the older Florida home that fails an insurer's four-point inspection, then replace the roof or the electrical panel with FHA money.
Standard 203(k) and Limited 203(k)
HUD offers two versions, and the size and type of the work decides which one you use.
| Limited 203(k) | Standard 203(k) | |
|---|---|---|
| Type of work | Minor remodeling and nonstructural repairs | Major renovation, including structural and foundation repairs |
| Repair budget | Capped at a total HUD reviews each year with the FHA loan limits | No set maximum, as long as the total loan stays within the FHA limit |
| 203(k) consultant | Optional | Required |
| Time to finish | Up to 9 months | Up to 12 months |
| Mortgage payments financed while you're out | Not allowed | Up to 12 months |
The consultant is a HUD-approved inspector who writes the work plan, checks costs and signs off on each payment to the contractor. A Limited 203(k) also allows the home to sit empty for no more than 30 days during the work, and we confirm the current Limited cap before you plan a large job.
How the loan amount works
The loan is built from the price plus the repair costs, checked against the appraiser's estimate of the home's value after the work is done. FHA's 3.5% minimum down payment applies to that total, and the whole loan stays under the county FHA limit, $541,287 for a single-family home in most Florida counties. The home must be your primary residence, and 2 to 4 unit homes qualify too.
A worked example: $280,000 home plus $40,000 of repairs
A buyer finds a $280,000 single-family home that needs a new roof, an updated panel and new flooring. The contractor bids $40,000, nonstructural work that a Limited 203(k) handles.
- Total cost: $280,000 + $40,000 = $320,000
- Down payment at 3.5%: $11,200
- Base loan: $308,800
- Upfront MIP at 1.75%: $5,404, for a total loan of $314,204
- Principal and interest at a 5.75% rate: $1,833.61 a month
- Annual MIP at 0.55%: $141.53 a month
For $11,200 down, the buyer owns a home with a new roof that insurers will write, and a payment built on the finished house.
Getting a 203(k) ready
Line up a licensed contractor early, since the bid becomes part of the loan approval. Get the home inspection and, in Florida, the four-point and wind mitigation inspections before you finalize the repair list, so the insurance needs are in the budget. Leave room for a contingency, because older homes often reveal more once walls are open.
The mortgage payment calculator shows the payment on the price plus your repair budget. To plan a fixer-upper purchase with a 203(k) from the first showing, call AAA Capital Funding at 888-601-8344.