FHA 203(k) Home Improvement Loan

FHA (Federal Housing Administration) / HUD (Housing and Urban Development)

What Is an FHA 203(k) Loan?

The FHA 203(k) loan, backed by the Federal Housing Administration (FHA), is specifically designed for buyers who want to rehab or improve a property. This program is perfect for turning a fixer-upper into your forever home—all while taking advantage of low down payment requirements and flexible credit guidelines.

There are two types of FHA 203(k) loans:

1. Standard 203(k)
   Ideal for major repairs including structural work, foundation issues, and renovations exceeding $35,000. This option requires working with an FHA-approved consultant.

2. Limited 203(k)
   Best for non-structural, cosmetic upgrades such as kitchen and bathroom remodels, new flooring, paint, or roof replacement. Maximum renovation cost: $35,000. This is the most commonly used version of the 203(k) program due to its streamlined process.

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Key Features of FHA 203(k) Loans

• Finance up to $35,000 in repairs or upgrades (Limited 203k)

• Low down payment – as little as 3.5% down

• Competitive, fixed interest rates

• Renovation and purchase combined into one loan

• Assumable loan option

• May involve longer processing time due to extra steps and documentation

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FHA Basics – Why Choose an FHA-Backed Mortgage?

FHA loans are government-insured mortgages that are accessible to a wide range of borrowers, especially first-time homebuyers. Even with a lower credit score or limited savings, you can still qualify with as little as 3.5% down.

It’s important to know that mortgage insurance is required on all FHA loans—regardless of down payment size. Unlike conventional loans, the only way to eliminate this insurance is by refinancing into a different loan type in the future.

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FHA 203(k) Loan Requirements

• Minimum credit score: 580

• We use the middle score from the three major credit bureaus—Equifax, Experian, and TransUnion—when determining eligibility. The highest and lowest scores are discarded, and the median score is used for qualification.

In addition to standard FHA requirements, 203(k) loans require extra documentation and planning, including:

• Detailed estimates from licensed contractors

• FHA-compliant property appraisals

• Inspections before and after renovations

• Project timelines and cost breakdowns

Although the process can be more time-consuming than a traditional mortgage, the ability to finance needed improvements upfront makes it a powerful tool for buyers with vision.

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Eligible Property Types

FHA 203(k) loans can be used to purchase or renovate:

• Single-family homes

• Townhomes and villas

• Duplex (2 units), Triplex (3 units), and Quadplex (4 units)

• FHA-approved condominiums (limited eligibility)

If you choose a multi-unit property, you can live in one unit and rent out the others, with potential rental income helping you qualify for the loan.

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Income and Asset Verification

To qualify for an FHA 203(k) loan, your income and assets must be verified. Here’s what we’ll need:

• W-2 employees: Two years of tax returns and a recent pay stub

• Self-employed borrowers: Two years of personal and business tax returns

• Retirees: Proof of income (Social Security, pension, etc.)

We also review bank statements to verify your ability to cover the down payment and closing costs. Gift funds are allowed—as long as they come from a verifiable source (no cash deposits).

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Make Your Dream Home a Reality—Even If It Needs Work

At AAA Capital Funding, we specialize in helping clients transform homes that need a little TLC into something truly special. Whether you’re buying a home that needs a full rehab or just a few cosmetic upgrades, the FHA 203(k) loan gives you the flexibility and financing power to make it happen.