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Guide to 203k Rehab Loans

The Federal Housing Administration (FHA) 203k Loan also known as a Rehab Loan or FHA Construction Loan allows homeowners to finance a house along with the needed or wanted repairs. This loan tackles these issues because the lender tracks and verifies the repairs making them more willing to approve this loan on a home it wouldn't otherwise consider due to safety and livability standards.

The 203k loan allows homeowners to buy and fix the house all in one transaction.

The process is very similar to the one of regular home buying with some minor differences:

After applying and receiving approval of this loan the homeowner must first decide what kind of repairs they want to see. Any safety of health hazards will definitely be addressed first, and from there any cosmetic items can be taken care of. If the buyer wants to replace appliances, remodel the kitchen, or change the interior and exterior painting, these are all acceptable types of repairs using this loan.

When the homebuyer has a list of renovations they need, it is time to find contractors. The contractors must be licensed and insured. Friends who do construction on the side will not be approved as contractors and homeowners cannot do the work themselves unless they are a contractor by profession. Be thorough when selecting a contractor because the entire project can be paused by one contractor who is unwilling to complete the required forms.

Once you select a contractor, get official bids. The bids should not be guesses they must be accurate. These bids will be submitted to the appraiser, who is in charge of building the value of the work into the future value of the property, which the loan is based on.

Submit everything to the lender. They should receive income, asset and credit report information. When all of the paperwork is received, the loan can go into “final approval.” Once all the forms are approved, homeowners will sign the final documents and the house is officially theirs.

There are two types of 203k loans, 203k Streamline and 203k Standard:

203k Streamline

This option allows homeowners to do minor repair work like kitchens and bathrooms with a limit of $35,000. Yet, an FHA 203k loan requires a contingency equal to 15 percent of the total bids. So, the “real” maximum repair job can cost around 31,000. Most non-structural, non-luxury items are acceptable but anything structural is not allowed. More lenders offer the 203k streamline rather than the full 203k, and it is also a much simpler process than the standard option. The standard option requires much more paperwork and proof of repairs.

203k Standard

This option allows homeowners to do almost anything to the home, except non-permanent changes or adding luxury amenities. Minor landscaping, adding a luxury amenity, or a project that will take longer than 6 months, is not allowed.


The strategy of buying and rehabilitating a home can give homebuyers much equity in a short amount of time. Some homes in need of repair can be sold at a much lesser price and the damages may not be expensive at all.


Homeowners will need to book reputable contract

ors and be very attentive about them completing the paperwork. They might even have to send a bid back to the contractor a couple of times for missing information. Homeowners will need to provide proof of all services and reparations.

The 203k loans require mastering time management. The paperwork will increase by 2-3 times compared to a standard loan, and homeowners will have to make decisions surrounding their budget while also being quick enough that the loan approval stays on track. This loan requires all proof of services and required renovations, therefore set realistic expectations! Despite the fact that this loan may take a more time and effort, with a bit of patience and determination homeowners can have a livable and completely renovated home in no time!

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