An FHA 203k loan is one FHA-insured mortgage that covers the price of a home (or a refinance) plus the cost of repairing it, with the repair money held in an escrow account and paid out as the work gets done. HUD offers two versions: the Limited 203(k) for nonstructural work up to $75,000 in total rehabilitation costs, and the Standard 203(k) for bigger or structural projects, with a $5,000 minimum and a required HUD 203(k) Consultant. The home must have been completed at least one year before the FHA case number is assigned.
I'm Taylor Ring, a Mortgage Loan Officer with Fairway Independent Mortgage Corporation (The Wood Group) in Belton. If you're in Temple, Killeen, or Waco and find a house with good bones and a tired kitchen, a 203(k) is worth a look. Fairway offers both the Limited and Standard 203(k). Everything below comes from HUD Handbook 4000.1 (last revised August 12, 2026), HUD's 203(k) program page, and HUD Mortgagee Letters 2024-13 and 2026-06, read October 24, 2026. For FHA basics like credit and down payment, see my FHA loan requirements guide. This post sticks to the rehab side.
Looking at a fixer-upper? Get Pre-Approved or Book a Free Consultation.
What HUD Says a 203(k) Can Do
Under Handbook 4000.1, Section 203(k) can be used to:
- Buy and rehabilitate a home in one loan
- Refinance and rehabilitate a home you already own
- Rehabilitate an existing one- to four-unit home used mainly as a residence
- Rehabilitate the interior of an eligible condominium unit (not areas the condo association is responsible for)
HUD's 203(k) program page explains the mechanics plainly: part of the loan pays the seller (or pays off your old mortgage on a refinance), and the rest goes into an escrow account that's released as the rehabilitation is completed. There's one closing, not a separate construction loan and a permanent loan.
How this differs from new construction: a 203(k) works on an existing home. If you're building from the ground up on a lot, that's a different product. See my construction loans page for one-time-close construction financing.
Limited 203(k) vs. Standard 203(k)
This is the decision that shapes everything else, so here's HUD's side-by-side.
| Limited 203(k) | Standard 203(k) | |
|---|---|---|
| Type of work | Minor remodeling and nonstructural repairs | Remodeling and repairs, including structural |
| Repair cost | Total rehabilitation costs up to $75,000 | Minimum $5,000 in eligible improvements; no separate dollar cap (the total loan still has to fit FHA limits) |
| 203(k) Consultant | Not required (optional) | Required |
| Plan document | Your work plan plus contractor proposals and itemized bids | Consultant's Work Write-Up and Cost Estimate |
| Rehabilitation period | Up to 9 months | Up to 12 months |
| Draw requests | Up to 4 per contractor (initial draw at closing, up to 2 intermediate, 1 final) | Up to 5 (4 intermediate, 1 final) |
| Time out of the home | Work can't keep you out more than 30 days total | Mortgage Payment Reserves of up to 12 months can be financed if the home can't be occupied |
| Contingency reserve | Optional, up to 20% of repair costs | Required for some homes (see below), up to 20% |
Two 2024 and 2026 changes worth knowing. HUD's Mortgagee Letter 2024-13 raised the Limited 203(k) cap from $35,000 to $75,000 for case numbers assigned on or after November 4, 2024, and stretched the rehab periods to 9 and 12 months. HUD says it will review the Limited cap each year alongside FHA's loan limits; the 2026 loan-limit letter didn't change it, and the August 2026 handbook still reads $75,000. Then Mortgagee Letter 2026-06 (June 23, 2026) raised Limited 203(k) draws from two to four per contractor. If you've read older articles quoting $35,000 or two draws, they're out of date. The $75,000 figure is HUD's limit; lender requirements may be stricter, so ask what limits your lender applies.
When a Limited 203(k) Isn't Allowed
HUD treats a job as "major" (Standard-only) if any of these apply:
- The work is expected to take more than nine months
- It needs more than four draws per contractor
- The appraisal calls for repairs that need a Consultant's Work Write-Up, plans, or architectural exhibits
- The work keeps you out of the home for more than 30 days total
HUD also lists specific work the Limited can't pay for, including foundation repair, room additions and other structural alterations, converting a one-family home into two to four units, landscaping and site improvements, and new swimming pools.
Eligible Repairs and What's Off the Table
Both versions cover a long list. From HUD's lists for the Limited and Standard programs:
Allowed under either program (examples):
- Fixing health and safety hazards that violate HUD's Minimum Property Requirements
- Repairing or replacing plumbing, heating, AC, and electrical systems
- Roofing, gutters, and downspouts (for the Limited, only if the roof's structural integrity isn't affected)
- Energy conservation improvements and accessibility changes for people with disabilities
- Fences, walkways, driveways, decks, patios, and porches
- A new refrigerator, cooktop, oven, dishwasher, built-in microwave, and washer/dryer
- Repairing or removing an existing in-ground pool
- Well and septic repair, or connecting to public water and sewer
Standard 203(k) only (examples):
- Foundation repair, reconstruction, or elevation
- Structural repairs, room additions, and finished attics or basements
- Adding or renovating an attached Accessory Dwelling Unit, or converting to two to four units
- Building or rehabbing a garage
- Landscaping and site improvements (these must add at least as much value as they cost, or protect the property from erosion)
Not eligible under either program: luxury and recreational items such as new pools, outdoor hot tubs or saunas, barbecue pits and outdoor fireplaces, tennis courts, gazebos, and satellite dishes, plus improvements that only serve a commercial use.
Which Homes Qualify
HUD allows a 203(k) on:
- One- to four-unit homes, including eligible condo units and site condos
- Manufactured homes, as long as the rehab doesn't affect the structural components built to HUD's federal standards
- Mixed-use properties where at least 51% of the building area is residential
- HUD-owned (REO) homes marked as eligible for 203(k) financing (investor purchases aren't eligible)
Key rule: the home must have been completed at least one year before the case number is assigned. A house that doesn't qualify for a regular FHA loan because of health, safety, or security issues may still qualify under 203(k) if the planned work fixes those issues. HUD also notes that if you only need a repair loan and aren't buying or refinancing, its Title I Property Improvement program is another option.
How Much You Can Borrow
Purchase
HUD's formula for a 203(k) purchase is the lesser of:
- FHA's loan-to-value percentage times the lesser of: (a) the Adjusted As-Is Value plus financeable repair costs, fees, contingency reserves, and (Standard only) mortgage payment reserves, or (b) 110% of the After Improved Value (100% for condos), or
- The FHA loan limit for your county
The Adjusted As-Is Value on a purchase is the lesser of the purchase price (minus any seller inducements) or the as-is appraised value, if one was done. The After Improved Value always comes from an FHA Roster Appraiser who appraises the home subject to the planned work.
For the regular FHA down payment rules and loan-to-value tiers, see FHA loan requirements. For your county's ceiling, see my FHA loan limits in Texas guide.
Hypothetical Example (No Rate Assumed)
These are made-up round numbers for illustration, not a quote or an estimate for any home.
| Line | Amount |
|---|---|
| Purchase price (Adjusted As-Is Value) | $200,000 |
| Repairs, contingency, and financeable fees | $45,000 |
| As-is value plus rehab | $245,000 |
| After Improved Value from the appraisal | $260,000 |
| 110% of After Improved Value | $286,000 |
| Lesser of the two | $245,000 |
| Base loan at 96.5% (credit score 580 or higher) | $236,425 |
| Minimum 3.5% from the buyer | $8,575 |
The upfront MIP on that base loan would be 1.75%, or about $4,137. For the 203(k) MIP, HUD measures loan-to-value as the base loan divided by the After Improved Value, which here is about 91%. My FHA mortgage insurance guide explains how that sets the annual MIP.
Refinance
On a 203(k) refinance, the maximum is the lesser of your existing debt plus the rehab costs and fees, the LTV-based figure using the same as-is-plus-rehab or 110% test, or the FHA limit. For refinances, HUD's LTV is 97.75% with a minimum decision credit score of 580 or higher, 90% between 500 and 579, and 85% for secondary residences. If you've owned the home for less than 12 months, an as-is appraisal is required.
What the 203(k) Will and Won't Finance
Financeable, per HUD: construction and repair costs, permits, inspection fees during construction, title update fees, the Consultant's fee, and, on a Standard, architect or engineer fees and a Feasibility Study. HUD also lets part of the origination fee be financed, up to the greater of $350 or 1.5% of the rehab costs, reserves, and fees.
Not financeable on a Limited: mortgage payment reserves, architect or engineering fees, or a Feasibility Study.
Energy improvements: costs under an Energy Efficient Mortgage, weatherization, or solar are figured separately, and on a Limited they can go on top of the $75,000 cap (still within 110% of the After Improved Value).
Contingency Reserves
A contingency reserve is a cushion for surprises found once walls are opened. On a Standard 203(k), HUD's minimums depend on the home's age:
| Home's actual age | When required | Minimum | Maximum |
|---|---|---|---|
| Less than 30 years | Evidence of termite damage | 10% | 20% |
| Less than 30 years | Otherwise | None (lender's discretion) | 20% |
| 30 years or more | Always | 10% | 20% |
| 30 years or more | Utilities not operable per the Work Write-Up | 15% | 20% |
On a Limited, the reserve is optional and capped at 20%. Unused financed contingency on a Limited goes toward your principal; on a Standard, it can fund extra improvements (with a change order) or go to principal.
HUD's 203(k) Consultant Fee Caps
If a Consultant is used, HUD caps what they can charge:
| Service | HUD maximum |
|---|---|
| Feasibility Study | $375 |
| Work Write-Up, repairs up to $50,000 | $1,000 |
| Work Write-Up, $50,001 to $85,000 | $1,200 |
| Work Write-Up, $85,001 to $140,000 | $1,400 |
| Work Write-Up, over $140,000 | 1% of repair costs or $2,000, whichever is lower |
| Each draw inspection | Reasonable and customary, up to $375 |
| Change order | $120 |
| Reinspection | $225 |
Add $25 per additional unit for the Work Write-Up, plus IRS-rate mileage if the Consultant's office is more than 15 miles away. HUD keeps an approved 203(k) Consultant search on its program page.
The 203(k) Process, Step by Step
- Pre-approval. We look at your credit, income, and the purchase price plus estimated repairs.
- Contract with a 203(k) clause. HUD requires the sales contract to say you've applied for 203(k) financing and that it's contingent on loan approval and your acceptance of any extra required improvements.
- Work plan and bids. For a Limited, you provide a work plan (no required format) and itemized contractor bids broken down by labor and materials. For a Standard, the Consultant inspects and writes the Work Write-Up and Cost Estimate.
- Contractor review. The lender reviews each contractor's credentials, experience, references, and licensing and bonding, and checks that bids are in the usual range.
- Appraisal. The appraiser gets the bids or Work Write-Up and values the home as improved.
- Underwriting and closing. You sign HUD's 203(k) Borrower's Acknowledgement and a Rehabilitation Loan Agreement. One closing.
- Work and draws. Under the Rehabilitation Loan Agreement, the lender may treat the loan as in default if work doesn't start within 30 days of closing or stops for more than 30 days in a row. The lender holds back 10% of each draw and must release funds within five business days of a properly signed draw request. Lien waivers are collected at each draw.
- Final inspection and closeout. Limited jobs over $15,000 need an inspection; at or under $15,000, contractor receipts or your signed Letter of Completion can be enough.
Doing your own work? HUD allows it only if you're a licensed contractor or can document rehab experience, and you're reimbursed for materials only, not labor.
Texas Notes
- Inspections still matter. HUD requires the Consultant agreement to disclose that a Consultant's inspection is not a home inspection. In Texas, use your option period for a licensed inspector. My home inspection guide covers what to expect.
- Older homes. HUD's contingency rules key off a home's actual age, and lead-based paint stabilization is an eligible cost for homes built before 1978.
Refinancing a Texas Homestead With Rehab Money
Texas home equity rules are complex, so here I'm only restating what the constitution's text says. Texas Constitution Article XVI, Section 50(e) says a refinance of homestead debt described in Subsections (a)(1) through (a)(5) that includes the advance of additional funds may not be secured by a valid lien against the homestead unless either the refinance is an extension of credit described by Subsection (a)(6), or all the additional funds are for reasonable costs necessary to refinance the debt or for a purpose described by Subsection (a)(2), (a)(3), or (a)(5).
Subsection (a)(5) covers work and material used to repair or renovate existing improvements. Its text lists these conditions:
- The work and material are contracted for in writing, with the consent of both spouses on a family homestead
- The contract isn't signed before the fifth day after the owner makes written application for the credit
- The contract lets the owner rescind without penalty within three days after everyone signs
- The contract is signed only at the office of a third-party lender, an attorney, or a title company
The text makes exceptions to the five-day and three-day conditions for immediate repairs to conditions that materially affect the health or safety of the people living in the home, when the owner acknowledges that in writing.
How these rules apply to a particular loan depends on the facts. If you're considering a 203(k) refinance on your homestead, ask me early, and talk with your title company or a real estate attorney before you plan around it.
Is a 203(k) the Right Tool?
A 203(k) shines when the house needs real work and you want one loan with FHA's down payment. It's slower than a standard FHA purchase because of bids, contractor review, and draws. Other options:
- Regular FHA, then renovate later if the home already meets HUD's standards
- Conventional, which can make sense with stronger credit or more equity (see FHA vs. conventional)
- A HELOC or home equity loan later, if you already own and have equity (see my HELOC guide)
Frequently Asked Questions
What is an FHA 203k loan?
An FHA 203k loan is an FHA-insured mortgage that combines the purchase or refinance of a home with the cost of repairing or renovating it. Part of the loan pays the seller or the old mortgage, and the repair money is held in an escrow account and released as the work is completed. HUD offers a Limited 203(k) for smaller nonstructural projects and a Standard 203(k) for larger or structural work.
How much can I borrow for repairs with a Limited 203(k)?
Under HUD Handbook 4000.1 and Mortgagee Letter 2024-13, total rehabilitation costs on a Limited 203(k) cannot exceed 75,000 dollars for FHA case numbers assigned on or after November 4, 2024. The repairs must be nonstructural, and the total loan still has to fit within FHA's loan-to-value rules and your county's FHA loan limit.
What is the difference between a Limited and a Standard 203(k)?
A Limited 203(k) is for minor, nonstructural repairs up to 75,000 dollars, does not require a 203(k) Consultant, allows up to nine months for the work, and cannot keep you out of the home for more than 30 days. A Standard 203(k) requires at least 5,000 dollars in repairs and a HUD-approved Consultant, allows structural work and additions, and allows up to 12 months.
Can I do the work myself on a 203(k) loan?
HUD allows it only when the lender documents that you are a licensed general contractor or have experience completing rehabilitation projects, and you sign a Rehabilitation Self-Help Agreement. All permits must be obtained before work starts, and the loan reimburses you for materials only, not for your labor.
Can I use an FHA 203k loan on a home in Texas that is less than a year old?
No. HUD requires the property to have been completed at least one year before the FHA case number is assigned, and the lender may ask for the certificate of occupancy to confirm it. For building a new home, a construction loan is the usual route instead.
Thinking About a Fixer-Upper in Central Texas?
Send me the listing and a rough idea of the work. I'll tell you whether it looks like a Limited or a Standard, what HUD's formula would allow, and what the cash to close might look like.
Get Pre-Approved | Book a Free Consultation
Related Guides
- FHA Loans
- FHA Loan Requirements in Texas
- FHA Loan Limits in Texas
- FHA Mortgage Insurance in Texas
- Construction Loans
- Home Inspection in Texas
Sources
- HUD Handbook 4000.1 (Last Revised 8/12/2026): 203(k) Rehabilitation Mortgage Insurance Program (II.A.8.a), 203(k) Consultant Fee Schedule (II.A.9.c), and Loan-to-Value Limitations Based on Credit Score
- HUD 203(k) Rehabilitation Mortgage Insurance Program page
- HUD Mortgagee Letter 2024-13 (203(k) revisions, case numbers on or after November 4, 2024) and Mortgagee Letter 2026-06 (Limited 203(k) draws, June 23, 2026)
- Texas Constitution Article XVI, Section 50
Taylor Ring, NMLS #2809683 | Fairway Independent Mortgage Corporation, NMLS #2289 | The Wood Group of Fairway, 127 Lake Rd Ste 300, Belton, TX 76513 | Equal Housing Opportunity. This is not a commitment to lend. All loans are subject to credit and property approval and program guidelines, and approval, rates, and program availability are not guaranteed. Lender requirements may be stricter than HUD minimums. No interest rates are quoted in this article. This article is general information, not legal or tax advice, and is not affiliated with or endorsed by HUD, FHA, or any government agency.