Think you have the guts to take on a Fixer Upper?

It’s a lot easier than you think. Your very best friend in this process? The FHA 203(k) Program.

If you’re like me, you’ve done it a dozen times: planted on the sofa, munching popcorn, coveting Joanna’s hair (be honest), and thinking, “I DO have the guts to take on a fixer upper! I could totally do that.”

I’m here to tell you: yes, that absolutely could be you! And it’s a lot easier than you think, especially if you aren’t afraid of the road less traveled. Your very best friend in this process? The FHA 203(k) Program. This special rehab mortgage comes in two delicious varieties (the Limited 203(k) Mortgage, sometimes called the Streamline 203(k), and the regular 203(k) Mortgage) and can help you turn the worst house in the best neighborhood into your dream home, just like on Fixer Upper. This special mortgage allows you to work the costs associated with upgrades (like bathroom overhauls, kitchen remodels, and new carpet) into your monthly mortgage! So there’s no need for a massive amount of cash upfront to finance the improvements yourself. You pay off the improvements a little bit every month and that’s just one of the perks behind this program. You also may qualify for a much smaller down payment minimum (we lucked out with 2.5%) if you are homebuyer. And all your improvements are performed by licensed/certified professionals so no late-night googling trying to figure out how to move an electrical outlet. It’s all done for you and you’ll know it’s done right!

So what’s the difference between the two 203(k) options?

The website for the US Department of Housing and Urban Development explains them this way:

Limited 203(k) Mortgage – FHA’s Limited 203(k) program permits homebuyers and homeowners to finance (or refinance) up to $35,000 into their mortgage to repair, improve, or upgrade their home. Homebuyers and homeowners can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or an FHA appraiser. Homeowners can make property repairs, improvements, or prepare their home for sale. Homebuyers can make their new home move-in ready by remodeling the kitchen, painting the interior or purchasing new carpet.

203(k) Mortgage – The Section 203(k) program is FHA’s primary program for the rehabilitation and repair of single family properties. As such, it is an important tool for community and neighborhood revitalization, as well as to expand homeownership opportunities.

Essentially, the Limited 203(k) is the lite version of the loan, capping at $35,000. This doesn’t allow for structural changes (like removing a load-bearing wall) but there’s a lot you can do with $35,000 if you use it wisely! The full 203(k) is for those homes that need a lot more lovin’ or require structural changes.

If you are a homebuyer and wanted to use the Limited 203(k), you would purchase a home at least $35,000 under your budget. You’d also want to make sure that it is selling for a lower price than homes comparable to it (this info is provided by your realtor). This ensures that the beautiful home you’re about to create will sell for as much as possible later on and it will help you get approved for the 203(k). Let’s look at an example of an ideal Limited 203(k) candidate:

A house is initially appraised at $200,000 while comps show that similar homes are selling for $240,000. The owners/potential buyers propose to overhaul the bathrooms, hire painters, update electrical fixtures, and address a few concerns that the home inspector identified. The house, with all the proposed changes, is appraised again at $230,000. So those super smart and savvy owners/potential buyers get their mortgage for $230,000 and, in a few years, are able to sell it at the high end of their comps for $240,000! Wahoo!

My husband and I used the Limited 203(k) when we bought our first house…a quaint 3 bedroom, 2.5 bath home. It was an easily walkable mile from the quaint downtown city center, which is what we wanted most when we started looking to lay down roots. We can walk or bike to the farmer’s market, family-owned restaurants and shops, and my husband’s office. But the house itself was in rough shape. Years of litter boxes and cigarettes coupled with elderly caretakers who were unable to perform upkeep made our first house the perfect 203(k) candidate! We were able to flip the three bathrooms (new vanities, marble floors, elongated toilets, and updated lighting fixtures), add recessed canned lights to nearly every room (and remove the dated/broken fans that were currently there), and add a closet to the bonus room, easily converting our 3 bedroom home into a 4 bedroom home! Talk about resale value.

This could easily be you! Yes, there will be a few hoops you’ll have to jump through and the 203(k) loans won’t finance some things that the typical fixer upper needs (like landscaping) but the pay off is so worth it. “Do YOU have the guts to take on a fixer upper?!”

Excerpts of this post are taken from “Fixer Upper for the Broke Girl: A Digital Guide to 203K Mortgages” by Lauren Cibene, coming to the Feathers & Foil store soon!

2 Comments
  • Haley Kelly
    Posted at 09:14h, 01 February Reply

    Hey there! Loved this post! So much wonderful info and inspiration. I was wondering if the interest rates with the 203(k) loan are comparable to interest rates in a conventional home loan? We will likely be buying a “fixer upper” soon, and we aren’t sure if it’s best to pay for renovations out of pocket or incorporate it into our mortgage like you did! Thanks in Advance!
    -Haley

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      Lauren Cibene
      Posted at 12:16h, 01 February Reply

      Thanks so much for reading and congrats on your soon-to-be fixer upper! Interest with a 203k (in our experience) is comparable to other FHA loans and depends on a few different variables (like the size of your down payment and the state of the market when you officially close). But, because it’s an FHA loan, rates are regulated. Your lender should be able to provide some helpful guidance for your specific situation (:

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