Because this is an FHA product, eligibility requirements are generally more accessible than conventional loans:

• Down Payment: Minimum of 3.5% for most borrowers.
• Credit Score: Borrowers with scores in the 580-620 range may qualify (requirements vary by lender).
• Occupancy: The property must be your primary residence. Investors are generally not eligible.
• Citizenship: Available to U.S. citizens, permanent resident aliens, and non-permanent resident aliens with valid work permits.

The 203(k) loan can be used for 1-to-4 unit dwellings, including individual condominium units (with certain restrictions) and manufactured homes. Eligible improvements include:

• Structural alterations and additions
• Modernization of kitchens and bathrooms
• Elimination of health and safety hazards (e.g., lead paint, mold)
• New roofing, gutters, and downspouts
• Major landscaping or site improvements
• Energy-efficient upgrades (HVAC, windows, insulation)
• Complete "gut" rehabs and teardowns (as long as the foundation remains)

• One Loan, One Closing: Bundle the home and the rehab into one mortgage with one set of closing costs.
• Based on Future Value: The loan amount is based on what the house will be worth AFTER repairs, not the current "as-is" value.
• Flexible Credit Standards: Much easier to obtain than standard construction financing.
• Low Down Payment: Only 3.5% down is required.
• Tax Deductible: Mortgage interest paid on the renovation funds is typically tax-deductible (consult a tax professional).

The 203(k) process is more involved than a standard loan because it requires oversight of the construction:

• HUD Consultant: For Standard 203(k) loans, a HUD-approved consultant must inspect the property and prepare a "Work Write-Up."
• Contractor Bids: You must select licensed contractors to provide detailed estimates for the work.
• Escrow Account: At closing, the funds for repairs are placed in an escrow account.
• Draw Schedule: As work is completed, the lender releases payments (draws) to the contractors after inspections. All work must typically be completed within 6 months.

The Limited 203(k) is designed for cosmetic repairs that do not exceed $35,000. It is faster and requires less paperwork, and it does not require a HUD consultant. The Standard 203(k) is for major projects costing more than $35,000 or any project involving structural changes (like moving a wall or adding a room). The Standard version requires a HUD consultant to manage the project and ensure it meets FHA safety standards.

• Higher Interest Rates: Rates are typically slightly higher than standard FHA or conventional loans.
• Mortgage Insurance: Like all FHA loans, you must pay upfront and monthly Mortgage Insurance Premiums (MIP).
• Paperwork Intensive: Requires contractor bids, inspections, and potentially HUD consultant fees.
• Strict Guidelines: You cannot perform the work yourself ("sweat equity") unless you are a licensed contractor by profession.