Written by the Simply Approved Mortgages editorial team
Reviewed for program accuracy by our Simply Approved Mortgages underwriting desk — Licensed mortgage originators (NMLS) — Colorado & Florida. We summarize published federal program rules; we do not set them. This article is educational and is not a quote, approval, or commitment to lend.
Published:
This guide explains repairs a 203(k) will and will and what to prepare before speaking with a mortgage professional.
An FHA 203(k) renovation loan lets you finance both the purchase or refinance of a home and the cost of repairs into a single mortgage. Under U.S. Department of Housing and Urban Development (HUD) guidelines in HUD Handbook 4000.1, eligible repairs range from basic roof replacements and HVAC upgrades to major structural rebuilds. However, HUD explicitly excludes luxury improvements such as swimming pools, hot tubs, and outdoor fireplaces.
At Simply Approved Mortgages, we help borrowers in Florida and Colorado evaluate whether a home's needed repairs fit within the FHA rehabilitation framework. Here is a breakdown of what an FHA 203(k) renovation loan will and will not cover.
How the two types of FHA 203(k) loans handle repairs
HUD divides the program into two options: the Limited 203(k) and the Standard 203(k). The scope of your planned work determines which track you must use.
The Limited 203(k)
According to HUD Handbook 4000.1, the Limited 203(k) caps total rehabilitation costs at $35,000 with no minimum repair amount. It is intended for minor remodeling and non-structural updates. You cannot use a Limited 203(k) if the project involves altering load-bearing walls, adding rooms, or moving structural supports.
The Standard 203(k)
The Standard 203(k) requires a minimum repair cost of $5,000 under HUD Handbook 4000.1, with no set dollar ceiling other than your area's maximum FHA loan limit. This option accommodates full structural alterations, major remodeling, room additions, and grading changes. Because of its complexity, HUD requires you to hire an independent FHA 203(k) Consultant to write the work write-up, prepare cost estimates, and inspect the project during construction draws.
Repairs an FHA 203(k) loan will cover
HUD rules focus on making a property safe, sound, and sanitary, but they also allow general modernization and aesthetic improvements. You can use 203(k) funds to address property deficiencies identified on an inspection or flagged during an assessment. Understanding the FHA appraisal checklist and what inspectors check helps you spot these mandatory repairs early.
Under HUD Handbook 4000.1, approved work categories include:
- Structural alterations and reconstruction: Repairing foundations, replacing framing, repairing damaged subfloors, and adding extra living space or attached rooms (Standard 203(k) only).
- Roofing, gutters, and downspouts: Replacing failing shingles, fixing structural decking, repairing flashing, and installing new gutter systems to redirect water away from the foundation.
- Heating, ventilation, and air conditioning (HVAC): Installing new central air conditioning units, replacing furnaces, adding heat pumps, and ductwork installation.
- Plumbing and electrical upgrades: Replacing outdated electrical panels, eliminating obsolete wiring, repiping deteriorated supply lines, and installing new water heaters.
- Kitchen and bathroom modernizations: Installing new cabinetry, countertops, tile, sinks, tubs, and vanities.
- Flooring, drywall, and painting: Laying hardwood, tile, or carpeting, patching or hanging drywall, and interior or exterior painting.
- Energy conservation updates: Installing double-pane energy-efficient windows, exterior doors, weather stripping, and updated insulation in attics and crawl spaces.
- Accessibility modifications: Adding ramps, widening doorways, lowering counters, and remodeling bathrooms to accommodate a household member with physical limitations.
- Major appliances: Purchasing and installing new kitchen appliances, such as refrigerators, ranges, ovens, and dishwashers, provided they are integrated into the real estate.
- Health and safety remediations: Removing lead-based paint hazards, mitigating radon, replacing decaying exterior siding, and connecting a home to municipal water or sewer mains.
What an FHA 203(k) loan will not cover
HUD enforces strict rules against using FHA-insured funds for purely recreational or luxury additions. The goal of the program is safe, functional housing, not extravagant amenities.
Under HUD Handbook 4000.1, improvements excluded from financing include:
- Swimming pools and hot tubs: You cannot build a new swimming pool or install a hot tub. However, if an existing pool is damaged and creates a safety hazard, HUD allows you to use loan funds to repair it back to working condition or fill it in.
- Outdoor luxury spaces: Barbecue pits, outdoor kitchens, exterior fireplaces, fire pits, and gazebos cannot be financed.
- Recreational courts: Tennis courts, basketball half-courts, and putting greens are not permitted.
- Detached luxury structures: Bathhouses, pool houses, and guest cottages are ineligible.
- Unapproved commercial items: Additions designed exclusively for commercial enterprise or home-based businesses that alter the residential character of the property are disallowed.
All improvements must be permanently attached to the real property. Portable personal items, such as standalone furniture, tools, or detachable window air conditioning units, cannot be included in your contractor bids.
Borrower eligibility and loan limits
When purchasing a home with an FHA 203(k) loan, you must satisfy standard FHA underwriting guidelines. Under HUD guidelines, the minimum down payment is 3.5% for borrowers with a credit score of 580 or higher. Reviewing FHA credit score requirements and recent payment history can help you prepare your financial profile before applying.
FHA loan limits cap the base loan amount, not the home's price, so you can still use an FHA loan on a home priced above your county's limit by borrowing up to that limit and paying the difference as a larger down payment, subject to lender underwriting and approval (HUD Handbook 4000.1). HUD establishes base limits each year across the country. In lower-cost areas, limits are lower, whereas high-cost areas—such as Monroe County, Florida, or Pitkin County, Colorado—have significantly higher limits. For a complete review of borrowing maximums, check out FHA loan limits and mortgage insurance costs or our Florida county loan limits overview.
Every FHA loan includes two forms of mortgage insurance: 1. Upfront mortgage insurance premium (UFMIP): Under HUD Handbook 4000.1, this is equal to 1.75% of your base loan amount and can be financed into the mortgage. 2. Annual mortgage insurance premium (MIP): Collected monthly. For loan terms over 15 years with a base loan amount at or below $726,200, the annual MIP is 0.50% if your loan-to-value (LTV) is 95% or lower, and 0.55% if your LTV is greater than 95%, as established in HUD Mortgagee Letter 2023-05.
All loans are subject to lender underwriting and final approval.
Contractor and timeline rules
HUD requires all work financed through an FHA 203(k) loan to be completed by licensed, insured, and experienced general contractors. Self-help, where the homeowner performs the labor, is strictly restricted by lenders and generally disallowed under modern investor guidelines.
According to HUD Handbook 4000.1: * Work must commence within 30 days of loan closing. * Work must not cease for more than 30 consecutive days during the project. * All rehabilitation work must be completed within six months of closing. * A contingency reserve of 10% to 20% of the repair budget is typically required to cover unforeseen repairs discovered once walls are opened.
If the home is uninhabitable during construction, the Standard 203(k) lets you finance up to six months of mortgage payments into the loan so you do not have to carry two housing payments at once.
Sources
This government publication is cited for FHA program background and general consumer education. FHA program rules described here are published by HUD and are not underwriting decisions; all loans remain subject to lender underwriting and approval. Simply Approved Mortgages LLC (NMLS #2620881) is a mortgage broker and is not HUD, FHA, or the CFPB, and is not affiliated with or endorsed by any government agency.
