Understanding FHA 203(k) Program: Part One

Mortgage and Lending with C2 Financial NMLS #279125

FHA 203(k) Renovation Loan....Easily the Most Underused and Least Understood Mortgage Product Available


FHA 203(k) Renovation LoanThe opportunities for utilizing the FHA 203(k) program abound in the current market; however, there are very few consumers or agents taking advantage of the opportunity.  The reasons for the under utilization of the program expose a couple areas of misunderstanding:


1).   The 203(k) program has been in existence and available for consumers for well over twenty years.  However, there are very few lenders who offer the product and there are even fewer lenders and loan officers who know how to originate and process the program.


2).   Listing and selling agents are not familiar with the 203(k) program and, as in all of human nature, there is a tendency to avoid that which we do not know.  In preparation for this article I sent emails to as several real estate agents with the following questions:


A.     Have you ever worked with a buyer or seller utilizing the 203(k) program?

B.     As a listing agent, would you be inclined to accept an offer from a 203(k) borrower?

C.     As a selling agent, would you be comfortable with working with a consumer through the process of a 203(k) program?


Contrary to what I had heard from other loan officers, not one real estate agent objected to the use of the 203(k) program when representing either the seller or the buyer.  However, almost all of the agents questioned did not understand the program and readily admitted that they would have to be educated in the process prior to encouraging their sellers to accept an offer or working with buyers looking for a renovation project.


(Note:  Karen Fiddlerin Mission Viejo, CA is the only real estate agent I corresponded with who has first hand knowledge of the product and she specifically said the biggest challenge was in educating the listing agent about the product).


3).   Consumers are not aware of the program and options available to them because their loan officer and/or their agent have not provided them with thorough knowledge of the program.


The current market of undervalued homes, foreclosures and short sales provide a great opportunity for agents and consumers to create opportunities that would not exist with any other mortgage product.  The purpose of this series provide both agents and consumers with a overview of the 203(k) program, implementation and process of the obtaining a 203(k) loan, marketing the loan to sellers, buyers and refinancing consumers and creating a vision for showing all consumers how the 203(k) program could create instant equity in a purchase or refinance of a currently underwater home.


Part One:  Overview of the FHA 203(k) program


The 203(k) program is a renovation loan, available for either purchase or no cash out refinance of an existing home within the same loan amounts limits of traditional FHA loans.  The program allows for minimal (as low as $5,000.00) cosmetic work, including replacement of appliances as well as a complete rebuild or renovation of an existing property (limited to using at least a portion of the existing foundation).


The loan amount is based upon an appraisal of the specified work to be completed (future value of the home) and allows for an escrow/impound account of up to six months complete housing payment if the house is uninhabitable during the renovation.  Final loan amount may be up to 103% of the future value as provided by the appraisal. (NOTE:  Actual FHA guidelines allow for loan to values up to 110%, however, lender overlays have reduced this amount to 103%).


There are two versions of the 203(k) program:  A streamlined (up to 35K) and a full 203(k).  Currently, investors have balked at the advance deposit on the streamline process and have pulled back from offering this version; therefore, only information of the full 203(k) will be presented in this series.



Underwriting Guidelines Summarized

  •      Owner occupied, 1 to 4 unit properties, SFR, condo and PUD
  •      HUD/Bank Repos
  •      Existing homes complete for one year
  •      New construction on part of original foundation
  •      Existing home moved to new foundation
  •      Structural alterations and additions
  •      Remodeling kitchens and bathrooms
  •      Changes to eliminate obsolescence and reduce maintenance
  •      Modernize plumbing, heating, AC and electrical systems
  •      Energy efficient improvements
  •      Install or repair well or septic systems
  •      Roofs, gutters and downspouts
  •      New free standing appliances
  •      Interior and exterior painting
  •      Flooring, carpeting and tile
  •      Swimming pool repairs (NO new pools, spas or luxury items)
  •      Other improvements that are a regular part of real estate


Rates competitive to traditional FHA loans

Fully assumable thirty year fixed rates

29/41 Ratios

Traditional FHA credit and income qualifying guidelines

30 day closingss possible

660 credit score required

General Contractor required (home owner may work as sub for GC)

Up to 6 months PITI and monthly MIP rolled into the loan


Next installment will list the process flow for agents and consumers through the underwriting and renovation process.

Posted by

Become a Fan!!  Copyscape

All content protected by copywrite and may not be copied, in part or in whole, without the express written consent of the author.  Reblogging with proper authorship credit is allowable.

Deborah "Dee Dee" Garvin

NMLS #279125



If you are looking for answers and creativity to accomplish your home buying goals and financial stability, contact me for a thorough analysis of your current and future home buying and refinance opportunities.  FHA, VA, renovation expert, HUD Certified First Time Homebuyer Certified Mortgage Banker.

(619) 906-6288


Comments (53)

Deborah "Dee Dee" Garvin
C2 Financial - San Diego, CA
C2 Financial

Missy,  Part two is up and posted...hope it helps agents and consumers alike!

Kyle,  There is absolutely no way I would do a 203(K) as a broker!  But, then I wouldn't recommend doing them with a big bank either....you know, where the processors really close the deal.   This is a product that requires collaboration between all parties to make it happen correctly.  Thanks for weighing in~

Renee,  Glad you enjoyed it...hope the next post of the "in's and out's" helps!

Aug 29, 2010 03:52 AM
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Yummy post

This has to be bookmarked and put into the Realtors tool chest........Knowledge is power and this little loan program has legs......Good job on laying it out and I will be looking for Part 2. BTW, I did attend a class on this and couldn't get my client to bite down on it. Looking back, I think knowing more about it and then having someone like Deborah explain it to the client would  have sealed that deal........Thank you Deborah

Aug 29, 2010 03:54 AM
Deborah "Dee Dee" Garvin
C2 Financial - San Diego, CA
C2 Financial

Richie,  Thanks for your support....you are correct, knowledge is power.  Hope you enjoy part two.

Aug 29, 2010 04:17 AM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!

i've done quite a few of these, especially back when they opened the program to investors.

660 score, like anything else that may vary, i can do 640.

great info thanks.

Aug 29, 2010 04:26 AM
Deborah "Dee Dee" Garvin
C2 Financial - San Diego, CA
C2 Financial

Jay,  I can go lower than 660...but need to verify restrictions.  I will be editing the post on Monday.  Thansk for visiting!

Aug 29, 2010 04:31 AM
Leslie Ebersole
Swanepoel T3 Group - Saint Charles, IL
I help brokers build businesses they love.

Deborah: I need you here. We could do a ton of business together. You will love the Midwest. Would you like to travel this Wednesday or Friday?

Aug 29, 2010 05:04 AM
Deborah "Dee Dee" Garvin
C2 Financial - San Diego, CA
C2 Financial

Leslie,  Bless you!  I do love the Midwest...from about September 15 thru the 30th and about May 1 thru the 15th!  LOL!  And, you are correct, there are a great many homes in the Midwest that could use this product.  In the days of old, it was available to investors....today's market would benefit from that move a lot, but I don't see it happening because there is such a negative attitude about investing and flipping (not my attitude, mind you!). 

Beyond the current market challenges are large and universal obstacles looming in the housing market and one of them is the fact we have an ever increasing section of "aged" housing that is going to need replacement or renovation in the coming years (okay, now who's doom and gloom?  LOL). 

I could always commute back and forth, I guess.  :-)

Aug 29, 2010 05:22 AM
Pam Simpson
Bob Leigh & Assoc., LLC - Senatobia, MS
GRI, Broker-Assoc.

I've had the pleasure of working with 2 buyer clients who used the FHA 203(k).  One of the homes was a HUD with extensive repairs needed and the other was a bank REO with minor repairs.  We have 2 local lenders who are great with this type of loan.  I hope they contine to offer this program.  My main challenge was finding a contractor who fully understood what the program was going to require of him.  Looking forward to the rest of your series on this topic.

Aug 29, 2010 05:23 AM
Deborah "Dee Dee" Garvin
C2 Financial - San Diego, CA
C2 Financial

Pam,  Delighted to hear from an agent who has had experience with product.  Would love to see you write a post from an agents perspective! 

Aug 29, 2010 05:39 AM
Deborah "Dee Dee" Garvin
C2 Financial - San Diego, CA
C2 Financial

Erica,  Thanks so much!!

Aug 29, 2010 05:57 AM
Cheryl Ritchie
RE/MAX Leading Edge www.GoldenResults.com - Huntingtown, MD
Southern Maryland 301-980-7566

I took the Re-Build USA class last year and may have a listing that needs the program shortly.

Aug 29, 2010 06:04 AM
Deborah "Dee Dee" Garvin
C2 Financial - San Diego, CA
C2 Financial

Cheryl,  Best of luck with your listing...the key is in the loan officer and the company's experience with doing the program.

Aug 29, 2010 07:07 AM
Rob Albertson
Realty Austin - Austin, TX

Very timely post for me...thank you.  I was just approached by some out of town clients looking for a remodel project.  

Aug 29, 2010 04:39 PM
Carey Scott
Prestige Property Brokers - Columbus, GA


I will be looking for part 2. I have to admit I'm not totally up to speed with the program like most agents so this is something that truly benefits me.

Aug 30, 2010 07:58 AM
Stephanie Reynolds
Integrity First Financial Group, Inc. - Santee, CA
East County San Diego Homes 619-838-4408

GREAT information Deborah. Off to read part duex!

Aug 30, 2010 01:10 PM
Deborah "Dee Dee" Garvin
C2 Financial - San Diego, CA
C2 Financial

Rob,  Good luck with the clients!  Remember...only owner occupied!

Carey,  It is up and posted!  Thanks for the comment!

Stephanie,  We could rock the world with this product, don't you think?

Aug 31, 2010 08:44 AM
Markita Woods NMLS#196099
American Financial Network - Woodbridge, VA
Queen of Mortgages - FHA, VA, Conventional, USDA


Thanks for the in depth information about this product. I encourage Woodbridge, VA Home Buyers to use the program but they rarely do.

I am reblogging the post and look forward to reading installment two as well.

Sep 01, 2010 06:36 AM
Deborah "Dee Dee" Garvin
C2 Financial - San Diego, CA
C2 Financial

Markita,  I really believe we are in a market that would benefit a great deal from this product.  Part two is up and posted.  Thanks for the reblog!

Sep 01, 2010 06:41 AM
Theresa Thornton

As a homeowner, I am overwhelmed by the amount of consumer information on thios program, but when you ask a lender  they say they have never heard of it. Is it that difficult to get? I really need something other than a refinance to fix my house with problems (former owner's son thought he was a carpenter) I have compressed joist, a bad addition, and dead trees that need to be cut down. Is this a program that would be worth looking into??????

Sep 03, 2010 11:04 AM
Deborah "Dee Dee" Garvin
C2 Financial - San Diego, CA
C2 Financial

Theresa, The FHA 203(k)  program is "real" and a viable option for consumers.  I am not sure where you are located and if my company (or I ) am licensed in your location, but contact me and I will give you as much information as possible. 

Sep 04, 2010 01:06 AM