Standard vs Limited FHA 203(k) Home Loans: What Are They and How Do They Differ?


Most people who move into new homes have to spend a fair amount on making repairs and modifications to fix their homes. Many former cash-strapped owners do not properly look after the property, or even renters could deliberately trash the place before leaving. 

Fixing these damages can take a lot of money. This is why the government initiated the Federal Housing Administration rehab loan product (FHA 203K) to provide homebuyers the opportunity to repair and rehabilitate their damaged homes. 

Let’s take a closer look at how the FHA 203k loan works and its different types.

What is an FHA 203K Loan?

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The FHA 203k renovation loan enables homeowners to borrow an amount that is set based on their income and credit rating. This government-insured mortgage program allows homeowners to obtain a loan for two purposes: to purchase a home or make home renovations. 

This program encourages families from low-income backgrounds to repair and rehabilitate their homes, especially those properties that are located in old communities. 

With this program, individuals can purchase and repair their homes under a fixed or adjustable rate mortgage. The amount loaned includes the total cost of renovation, the purchase price of the home, the required materials, and the hired labor. 

To acquire the FHA 203k loan, you will require an FHA-approved appraiser and a copy of your repair and improvement plans. 

The FHA limits the amount that you can loan with the 203k loan. People can borrow 110% of their home’s total worth after renovations. The loan, however, cannot exceed the property’s pre-renovation value. The FHA loan limit in your county will also govern the amount of money you will receive.

The Different Types of FHA 203K Loans

The FHA 203k loans are of two types: limited 203k and the standard 203k. 

Families planning to make their property into a primary residence qualify for these loans, whereas house flippers and real estate investors do not. 

The amount of work required on the house must be contracted to a qualified and licensed handyman. A qualified mortgagor can also act as the general contractor and perform the labor work themselves with the money for additional improvements and cost overruns.

Standard 203k Rehabilitation Mortgage (Extensive Work)

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The standard 203k loan is used to finance home repairs that cost around at least $5000. For this purpose, eligible homeowners must consult with an FHA-approved 203k consultant who will come and inspect the property and determine the required work scope, devise architectural exhibits, and provide cost estimates. 

You can get extensive structural work done without capped repair costs with this loan. 

Limited 203k Rehabilitation Mortgage (Minimal Repairs)

The limited 203k loan is used when a home does not require any extensive structural repairs. There isn’t a set limit for the limited 203k loan, but the amount is capped at $35,000. You’ll require a proper work plan, and you won’t need to hire a 203k consultant for this purpose. 

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What Can an FHA 203K Loan Be Used For?

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An FHA 203k loan can be used to repair and rehabilitate the following types of properties.

  • One or four-unity single-family homes
  • FHA-approved condominiums or a townhome
  • Manufactured homes that do not require any structural changes
  • Mixed-used properties where the residential portion consists of one to four units

The home must be one-year-old, and the loan applicant must have lived there for at least 12 months.

The FHA 203K loan will provide coverage for the following repairs:

  • Flooring
  • Plumbing
  • Heat and air conditioning system repairs
  • Bathroom and kitchen remodeling
  • Improvement of health and safety standards
  • Add a garage
  • Demolish and rebuild structures on the existing foundations
  • Finish a basement or an attic
  • Implementing access tools for disabled people
  • Landscape improvement 
  • Installation of energy conservation systems
  • Door and window replacements

Ready to rebuild and repair your property? Talk to qualified and licensed mortgage lenders New York today at Atlantic Home Capital. 

Their industry-leading mortgage consultants have decades of experience and can walk you through the complex process of buying and repairing a home. They also provide a range of mortgage loans, including bank statement, conforming mortgage, conventional, no W2, and investment property loans


About the Author

Michael Rowe is one of the top mortgage consultants at Atlantic Home Capital, who has been working with them for the last five years. With an extensive experience in the mortgage market, Michael writes in-depth guides about different types of mortgages in the US. 

Michael likes to play chess and spend quality time with his pets in his free time.

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