FHA 203(k) Renovation Loan Updates 2024

One of the most affordable ways to purchase and renovate a home is getting a major renovation itself. Effective November 4th, 2024, changes to the FHA 203(k) loan program will make it well-adapted to today’s market.  

What is an FHA 203(k) Loan? 

The FHA 203(k) Loan is a renovation loan that helps thousands of people expand their home search to include fixer-uppers or make an offer on a home that doesn’t check all the boxes. Renovation loans are a type of mortgage that finances the purchase of a home, plus the funds to make improvements or additions. For example, let’s say you find a fixer-upper for $280,000. A contractor estimates that it will require $30,000 to make the renovations you want. You would take out a renovation loan for $310,000 minus the down payment. 

When to Use an FHA 203(k) Loan

Being an FHA loan program, it is funded by the government at lower rates, lower down payment requirements, and with less stringent credit requirements. It is a great way to break through the barriers of limited inventory and high prices. 

In some markets, the cost of a move-in-ready home significantly surpasses the cost of purchasing and renovating a fixer-upper. It is when home buyers are in a scenario like this that renovation loans like the FHA 203(k) should be a topic of discussion with your mortgage banker. 

203(k) Basics

Before we dive into the changes, here’s a quick overview of this valuable loan program. 

• Provides the funds to purchase and renovate a home with just 3.5% down and one simple mortgage payment
• Makes renovation costs significantly more affordable, as they are being financed over 30 years
• Involves the assembly of a team, optionally including a HUD Consultant to take bids from reputable General Contractors, giving the buyer peace of mind that they won’t be going at this major project alone
• Borrowers can choose between a Standard or Limited 203(k) Loan. Standard is appropriate for major repairs, such as structural improvements or additions. Limited, which provides a much easier process, is for things like kitchen remodels, new flooring, etc. 

203(k) Updates 2024 

1. The most exciting news is that borrowers can now finance up to $75k in renovation costs. Up from $35k previously, this expansion meets borrowers’ needs given today’s material and labor costs.
2. The timeline for completion of work using a Standard loan is 12 months and 9 months for a Limited. Modern supply chain issues begged for a longer timeline and HUD answered. 
3. The HUD Consultant fee can now be financed. Upfront costs are one of the most common barriers to homeownership and HUD has taken a step to eliminate one by including it in the mortgage. 
4. The allowable Consultant fees have been updated for the first time since 1995. Now that consultants can charge more, there will be more of them to help buyers through a smooth and steady process. 

If you’re currently facing challenges in finding the perfect home in a limited inventory market, discover the opportunity to create it! Fill out the form below to start a conversation with a mortgage banker.